Bad Debts, Unpaid Invoices, and How to Avoid Them

Bad debt is a common problem for businesses, especially for those dealing with trade debtors. When a customer or client fails to pay their invoices, it can have a significant impact on the business and the economy as a whole.

1. According to a report by Experian, the total amount of bad debt in the UK was estimated to be ￡22.6 billion in 2020.
2. A study by Euler Hermes revealed that the average length of time for payment of invoices in the UK increased from 43 days in 2019 to 46 days in 2020.
3. The UK government has reported that bad debt and late payment are major challenges for small and medium-sized businesses, with 1 in 3 SMEs experiencing payment issues in the past year.
4. A report by the Bank of England estimated that the cost of bad debt to businesses in the UK is around ￡20 billion per year.

These statistics highlight the prevalence of bad debt and its impact on businesses and the UK economy as a whole. It is important for businesses to take steps to reduce the risk of bad debt and ensure that they are able to collect payments from their trade debtors in a timely manner.

In today's challenging economic climate, it is more important than ever for businesses to take steps to mitigate the risk of bad debt and unpaid invoices. Here are some strategies that businesses can implement to reduce the risk and ensure they receive payment in a timely manner:

1. Credit checks: Before extending credit to a customer or client, it is important to conduct a thorough credit check to assess their financial stability and ability to pay.
2. Payment terms: Establish clear payment terms with trade debtors and enforce them consistently. Consider setting up automatic payment systems to ensure that payments are made on time.
3. Invoicing and follow-up: Send invoices promptly and follow up on overdue payments in a professional manner. Consider implementing software to automate the invoicing and follow-up process.
4. Debt collection: If a customer or client fails to pay an invoice, it may be necessary to engage a debt collection agency to help recover the debt.
5. Diversify your customer base: Diversifying your customer base can help reduce the risk of bad debt by spreading the risk across multiple trade debtors.
6. Monitor your clients' businesses: Keeping an eye on your clients' businesses can help you anticipate any events that might impact their ability to pay. This can include changes in the market, financial difficulties, or changes in ownership. By monitoring their business, you can take proactive steps to address any potential payment issues and reduce the risk of bad debt.
7. Consider Single Invoice Protection and Whole Turnover Protection: Single Invoice Protection and Whole Turnover Protection are two types of insurance that can provide coverage for bad debt. Single Invoice Protection covers specific invoices, while Whole Turnover Protection provides coverage for the entire turnover of the business. These types of insurance can help reduce the financial impact of bad debt and provide peace of mind.

Red Flag Alert has the data and technology to assist businesses with Credit Checks, Analysing Diversification, and Real- / Near-Time Business Monitoring.

To protect your business from financial loss, consider purchasing Single Invoice Protection, or Whole Turnover Protection, from InsureTechs like Nimbla .