Can you spot a bad debt in advance? If a business owes you money and it goes into administration, you could be in for a frustrating wait. When it comes to what you’re owed, you are likely to find yourself waiting behind others, such as insolvency practitioners, banks and staff. And the whole process can be quite lengthy.
Prevention is better than cure so look for the warning signs of bad debt before this situation can arise.
Late Payment Problems
If you have a client or customer who repeatedly fails to pay you on time you should treat this with some caution.
There are people who, unfortunately, quite cynically delay payments to keep money in their account for longer. But you can also find that persistent late payers are having troubles of their own.
It is important to remember that if unpaid invoices go beyond the time specified on your terms and conditions, then the risk of bad debt increases.
You may also come across various common excuses for payments being late every time. These range from the obvious “the cheque’s in the post” to the more creative, to do with illness, bereavement, or software and hardware issues.
Another thing to look out for is when someone’s payment performance takes a dip. If your customer starts out paying you punctually but this then levels off and then drops conspicuously, it’s a warning.
The onus is on you to do the research. Ask your contacts for any news about your customer and how their business is running. Look in the media for news about them, if they’re big enough. Have they recently lost a major contract?
Run a credit check report. Don’t just let things continue as they are, because bad debt might be just around the corner. You can subscribe to credit checking services that will automatically update you of any changes by email.
Poor communication can be an indicator of trouble. Most emails run automatically, but a “mailbox full” return message is a clear sign that something is amiss.
Similarly, if you send a letter by post and it gets returned, you know something is wrong.
Being cautious about bad debt is properly managing financial risk. Spotting the signs in advance may well save you a lot of trouble and heartache later.
We help our clients by listening to them and talking to them in a language they understand. It’s about us presenting a very human face to what we do, making the law accessible, so that people see it as a valuable tool that can help them. If you would like a confidential chat about a current debt claim or how to manage your debt, contact Jan Firth on 01706 941 400 or via our contact form.