In the last financial year alone, small to medium sized enterprises (SMEs) in the UK wrote off a combined debt of £5.8bn. Further research estimates that 82% of SMEs are currently owed an average of £62,957.
Writing off bad debt can have a disastrous impact on a small company with limited capital. As soon as its cash flow is compromised, it could potentially lose money and face insolvency. At Nucleus, we have seen this happen time and time again, especially in the construction industry. It’s becoming an increasing problem though, across all sectors.
Here’s a quick guide on how to identify and how to get rid of bad debt.
Excuses, excuses, excuses
As soon as you don’t receive payment as per the agreed upon terms, you’ve got a problem. From here on out, prepare to spend an inordinate amount of time chasing your debtor. At first, they’ll answer your calls only to give you every reason under the sun for why payment is late, such as: ‘’we’re still waiting to receive payment ourselves’’ or the classic ‘’we’ve just finished processing our invoices, the money should reflect by the end of the week’’.
As the weeks roll by without payment, your phone calls and emails will start going unanswered. Once they’ve run out of excuses, your debtor will simply avoid you.
Show me the money
Once you’ve exhausted all your in-house resources, it’s time to call in the big guns – however they do charge for their services. You have a choice of either using a debt collection agent to chase late payment or a solicitor should you decide to take legal action for non-payment.
Prevention is better than a cure
We work closely with many SMEs and are often concerned by how many seem to overlook the one basic rule of business: always credit-check or credit-insure the companies you’ll be trading with.
In fact, given the availability of credit insurance, the amount of SMEs currently experiencing the impact of bad debt is surprisingly high. Here’s how credit insurance generally works - an insurer will sell you a policy that indemnifies you for up to 90% of the debt should they believe that the debtor’s company is credit worthy. They give you a credit limit and as long as you stay within that limit, even if the debtor becomes insolvent, you’ll get 90% back.
Working out how to get rid of bad debt is never easy: if you’re looking to improve your cash flow and protect yourself – speak to us. We know how to protect against bad debt and can offer bad debt protection at competitive rates as part of our invoice finance services. Get in touch with one of our specialists to find out more.
How to get rid of bad debt
Eric joined Nucleus as a Sales Director covering Midlands. Eric is involved with developing new introductory sources, servicing existing ones and obviously following any introductions through from initial meeting to when they become Nucleus clients.
For the past 10 years Eric has specialised in providing working capital funding solutions for SMEs in the UK marketplace. Previously he successfully opened and developed a Birmingham office for both Bibby and Cattles (now Aldermore) before moving on to developing the Bibby construction finance business.
Eric has close working relationship with intermediaries such as accountants, bank managers, finance brokers, insolvency practitioners, national brokers and private equity houses. Eric graduated from University of Brighton with Honours in Business Studies.
In his spare time Eric enjoys playing golf, pool and snooker.