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Warning Signs Of Bad Debt

by | Mar 07, 2017 |
Early signs of bad debt

How can I protect my company from cash flow problems due to outstanding payments?

It is well worth keeping a close eye on your customers to spot any early signs of financial distress and act quickly.

You must try to avoid businesses going into administration whilst they owe you money. The Administration process is lengthy and in most cases you will be at the back of the queue to getting paid. The insolvency practitioner will take their fees first, and ensure that any bank loans and staff have been repaid. Normally in this scenario there is very little or nothing left for anyone else, and could take years to receive only a small contribution of pence in the pound.

Common Warning Signs

  • Late Payments

If a customer always pays late, it is difficult to know whether this is a sign of them experiencing financial difficulties or just a cynical view to paying outstanding invoices on time. The longer your invoices are outstanding and outside your terms, the more chance you have of being caught in the bad debt cycle trap.

Troubled businesses will look to pay only the invoices they have to. As a matter of priority they will look at services and materials they absolutely need to keep their business afloat first, then PAYE and payroll. It is only then that the customer will look to pay off those outstanding invoices that are most urgent to them.

  • Excuses, Excuses …

“I Can’t Afford to Pay.”  This should set alarm bells ringing if you hear this from a customer. It may be a sign that they are holding off creditors and you need to escalate the situation quickly to make sure that when they have some money to pay, you’re at the top of the pile for payment.

If the excuses keep coming as to, why they didn’t or can’t pay, then don’t waste any time. It is time to escalate the process of collection.

  • Business Difficulties

If you hear via the industry grapevine, that a customer has lost one of their major contracts, or has had some other major blow, it’s time to start paying close attention to their invoices, until you are confident that this has no impact on their own payment practices.

If any of these warning signs apply with a customer, it would be well worth considering involving a professional to help recover and resolve this matter quickly.

Outsourcing your receivables management can improve cashflow

Outsourcing your receivables management to a specialist debt collection company allows you to concentrate on your core business while being sure that your receivables are taken care of professionally.

Spratt Endicott Solicitors has a successful specialist debt collection department, which is fully regulated and FCA authorised. outOur team is ranked in Tier 1 for the South East region of the Legal 500 UK and we use modern methods of debt collection and do our best to find individual solutions with your customers.

Advantages of working with a debt collection company

  • The main advantage of working with a debt collection company allows you, the client, avoiding having to plead with the customer for payment.
  • A high success rate and improved cash flow.
  • Long-term monitoring of customers, that are not able to pay, increases the chance that they will pay in the future, once they have recovered financially.
  • We are experts in what we do and know how to approach the different cases, thereby increasing the chance that a debt will be paid.
  • More efficient use of your human resources.
  • Ability to flex your resources to meet peaks in demand.

Protecting your reputation and maintaining customer relationships

When working with a debt collection company it is essential to check in advance that the agency you choose is a reputable partner. Unfortunately, not all the collection agencies are the same and not all of them possess the necessary resources or take the necessary steps to prevent harm to your company.

At Spratt Endicott we appreciate how difficult it is to win new customers and how important it is to retain good customer relationships. This is why our experienced, trained staff always try to achieve amicable solutions to protect your reputation and business at all times.

In many cases, using an external collection agency actually positively affects your company image. Investors, suppliers and customers will know that you take your collection process seriously and that you use a professional partner to handle it.

Article originally written by Hazel Wells, Business Development Manager for Commercial Recoveries at Spratt Endicott Solicitors.

If you would like find out more about how Spratt Endicott could help you in the recovery of commercial, consumer or international debts, please contact Richard Gwynne on 01295 204087 or by email at rgwynne@se-law.co.uk.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.

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