Archive for October, 2012

12
Oct
12

Protect your business from failing customers

Although insolvency statistics for the first six months of 2012 show that the total number of companies being placed into liquidation, administration or entering voluntary arrangements remained static when compared to the same period of 2011, it has been estimated that 8% of UK businesses – some 146,000 businesses and companies – are teetering on the edge, neither failing nor thriving. 

These are businesses which may struggling to pay their debts as and when they fall due, or are having to negotiate payment terms with suppliers or are just able to pay the interest on their debts but not reduce the debt itself.  The danger for these businesses is that without any positive upturn in the economy soon, any change in circumstances – such as a large bad debt, loss of an important customer or a rise in interest rates –  may mean that they are unable to continue trading.

For these businesses, being proactive and taking professional advice before it is too late can often result in the business surviving rather than failing. Of all the companies that I have advised and acted for in the last twelve months, in 70% of the cases I was able to help save the business. Of the 30% which could not be saved, there was often a reason why, such as retirement, disputes between directors or there no longer being a viable business.

So many businesses teetering on the edge is of course a potential risk to those companies and businesses that trade with them and give them credit. If you are trading with one of these businesses you are unlikely to know until it is too late. So what practical things can you do to limit this risk?

Know Your Customer

  • Look at their accounts, carry out a credit check and understand what they do. Set a credit limit that you are comfortable with and stick to it – as ultimately that is what you will lose if their business fails and they don’t pay you.

Retention of Title

  • If you supply goods rather than services, consider incorporating a Retention of Title Clause into your terms and conditions so that you can recover your goods if payment is not made.

Personal Guarantees

  • Consider incorporating a personal guarantee into your credit application form and ensure it is signed by a director if you are trading with a limited company. This is something that more companies are doing. If you have a personal guarantee, be proactive. Use the threat of it to get paid by the company before it fails rather than waiting until after liquidation when the director may not have the funds to pay.

Be Persistent

  • Devise a credit control system that works for your business and be consistent in operating it. Keep pressure on your debtors for payment within your terms of business. In the run up to a company or business failing, payment is often made to those who “shout the loudest”. So make you that you are the one who is doing the “shouting”!

For confidential and expert advice please contact Christopher Brown, Business Recovery & Insolvency Partner at Hart Shaw on T: 0114 251 8850 or email: chris.brown@hartshaw.co.uk.

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Hart Shaw Business Recovery & Insolvency

Click here to read the published article

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