Don’t Let Debt Give Your Business a Beating

Business Insights

The UK’s economic success and productivity rests on the success of small and micro businesses, and the issue of the UK’s poor payment culture is crippling for many small firms.

The Federation of Small Businesses has long highlighted that some larger companies exploit the imbalance of power with small suppliers to impose unacceptable terms, exceedingly long payment periods and late payments.

They estimate that eliminating the scourge of late payments would see 50,000 businesses saved each year, and add £2.5bn to GDP, which would be a real boost to UK productivity.

How badly is the late payment culture affecting your business? Do you have good credit control procedures in place, and stick to them? Many small businesses don’t, and a major default, or a number of smaller ones without some sort of a contingency plan or the availability of back up funding can lead to the situation becoming critical very quickly.

Many business owners, being entrepreneurs, will believe they can trade their way out a difficult situation, and to be fair, many can and will, but others will not, and the results of poor cash flow due to bad debt can make their choices seem dark indeed.

For the small business owner whose company is his or her life, to lay off loyal members of staff, and to be unable to meet their financial obligations can be truly dreadful. However, while you can’t take back what’s happened, you can choose what you do next, and there may be more options than you think.

Before you put up the shutters get some advice, James Stanton from commercial debt recovery specialist, FreeDebt Recovery says: “Things may not be quite as bad as you think, and the sooner you can formulate an action plan the better”.

Enlist the aid of a business recovery practitioner, there are a number of companies who specialise in this area. As professionals they will be able to offer a fund of experience and a host of pragmatic strategies to tackle your situation.

They understand how distressing the situation can be and are there to offer practical advice; they won’t judge, so be completely open, you won’t surprise or shock them, and the better understanding they have of your business the better their chances of helping you successfully formulate a plan to tackle your difficulties.

They will be able to assess the general health of your business and whether your difficulties are likely to be short term or more serious. If short term, the situation often boils down to poor cashflow due to bad debt.

It can be difficult for some small business owners on very friendly terms with their customers to insist on the payment of overdue accounts, but by dealing with the debt through a third party you will be able to maintain that relationship, should you wish to.

Enlisting the aid of a professional will also make it clear to your debtors that non-payment carries consequences, and debt recovery specialists have a host of strategies in their armoury to tackle sluggish cash flow caused by slow or late payers.

The company will talk to your customer to find out why they haven’t paid and do some basic research on the company to establish their ability to pay.

The normal procedure is to then send the debtor a formal request for payment, giving them a pre-agreed time by which they must pay the debt or expect to have charges added to the debt. If the debtor still does not comply, and it is surprising how frequently that first letter from a third party organisation does the trick, a second letter is usually sent notifying of yet extra charges to be paid by the debtor.

Further steps if the debtor is particularly intransigent, usually involve court action, leading to loss of reputation and a damaged credit history for the debtor. It is unusual for things to go that far, and up to the creditor to decide whether the costs of going to court are justified.

We would all prefer to just keep running our businesses rather than spend time getting tough with customers, so would prefer to let the professionals deal with bad debtors, while we keep on doing what we do best, growing our businesses; but in order to that we need to get paid, and to get paid on time!

For help and advice on managing your bad debts visit