Struggling Businesses and debt!

January 29, 2019

A recent report from R3 the Midlands branch of the Insolvency and Restructuring trade body has highlighted the fact that SMEs are increasingly struggling with managing their debts. The research shows that 12% of companies are struggling to pay their invoices on time and another 12% are trying to renegotiate their payments. The impact can be considerable as non-payment of invoices moves up the chain through suppliers of parts, finished goods and services. Although the article looks at the Midlands this effect is by no means limited to that area. This may also have been exacerbated by an increase in company insolvencies. At the Debt Recovery Bureau we see the negative effects of insolvencies, both commercial and individual, affecting all categories of business, throughout the UK and Ireland.

Further signs that businesses are struggling are highlighted in the report including being owed payment on invoices that are over 30 days past due, decreased profits, a reduction in sales volumes, regularly using the maximum overdraft facility, a fall in market share, or having had to make redundancies.

How can you armour your company against the effects of the insolvency of others and the climate of late payment? The main thing you can do is to keep on top of your invoices to make sure that you are paid promptly. The longer your invoice remains outstanding the higher the likelihood that your invoice will remain unpaid, often because it means your debtor is having problems paying their bills.

Here are a few key points to help you manage your process effectively:

This may sound like a case of ‘stating the obvious’ but it is surprising how many business owners do not invoice promptly for goods or services. People aren’t going to pay you unless they know what they are paying for, how much it costs and when payment needs to be made by.

Credit Control
Effective credit control means you have internal processes in place which ensure that you can maximise income from your customers. Define these processes and make sure that staff adhere to them. Setting up this system can take a bit of time but once in place and applied consistently you should see a significant reduction in payment problems.

Making it easy for your customers to make a payment will increase your cash flow and reduce late payments. Ensuring details of how to pay (including your bank details and who cheques need to be made payable to) are on your invoices and other correspondence will make the payment process easier for your customers.

Phone contact
Phoning your customers prior to the invoice payment date to ensure there are no queries can also serve as a reminder that payment is due. Consider using a range of contact methods including emails, text and phone calls, as well as letters, to maintain contact with your customers.

7 day letter
Before referring your non payers to a debt collection agency it is worth sending them a 7 day letter. The purpose of this is to give notice that unless payment is received within 7 days you will refer the case to a debt collection agency. Point out that your customer will also be liable for any debt collection fees and costs which are added to the total owed. The sending of a letter can often prompt a payment.

Debt Collection
Once you reach the end of your credit control process it is probably time to pass your outstanding late payments to the experts allowing you to do what you do best, running your business.

Bringing in the Experts
Just as you know how best to run your business, debt collection agencies are experts at recovering money from payers. They know how to determine whether your customers are ‘can’t pays’ or ‘won’t pays’ and have systems in place to deal with these different scenarios.

Businesses often spend relatively large sums of money on marketing but then don’t spend the time required on the credit control process. Getting your outstanding invoices paid should take up less time then generating new business and is just as vital, if not more so. If you would like some help with your outstanding payments please contact Neil – or give him a call on 0800 440 2359.

Read more – article by R3:

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