BAD DEBTS - CASH FLOW PROBLEMS
Bad debts can very often cause a perfect storm for any SME business owner, especially those which are totally unexpected i.e the client was ‘good for it’.
This will be a relatively short article but what I'll do is comment on our viewpoint on bad debts here as:
- We are at the front end of business issues and find ourselves receiving increasing enquiries across the board, and
- Being a business owner is a lonely carry-on and hopefully, this will show its not just you struggling with this issue.
Typically, bad debts arise in a range in differing forms:
- The completely out of the blue e.g. a client themselves suffers a debt from a large client, for example, Carillion and that hits say, a decent-sized builder. To date, they would have been paying as due and are relatively fair, but suddenly such a large debt causes all sorts of issues and the problem ‘ripples’ out.
- ‘Chasing the dragon’. Overcommitting in a big way when you follow the opportunity that a supplier may have and you effectively become an investment rather than a supplier. So easy to do.
- Knowing a business is struggling but continuing to support with increased terms, with the hope that the supplier’s assurances that all will come…don't do it.
- The F word. Not that one…Fraud. Hard to prove but we find cases of acts of fraud by ‘questionable’ people who dupe suppliers. Very often it would be hard to prove and understandably, the bad debt issue is the very real threat.
The bad debt situation causes real knock-on problems across the board with:
- Staff wages,
- The Bank and/or other sources of funding,
- Suppliers,
- HMRC,
Bad debt wallops cash flow as we all know. My senior partner, when training to be an accountant, said: “CASH FLOW IS THE 7TH WONDER OF THE WORLD”
He added even Robert Maxwell had cash flow, only it wasn’t his, as he pillaged the Mirror Group’s, Pension Fund.
If you are suffering from cash flow issues or looking to avoid customer issues, we would offer the practical tips in terms of assessing someone’s credit risk and or viability:
- Always use a credit agency on the person and or company,
- Push for PG’s, and
- A big one for us is what information is out there using:
- Google,
- Companies House, and
- Other social platforms.
So that’s this week’s article…I would implore you if you are suffering alone here, Bell & Company are here to help.