If you’re running a growing startup or SME, it’s likely to be a four or even five-figure sum; money that could be boosting your cash flow for growth, investment or new hires. So far, so obvious perhaps - but what do you do if those late payments fail to materialise months or even years after they were initially due?
Well, more than half of all the business owners reading this will, at some point, have decided to write off a bad debt that they couldn’t recover. 53 per cent, according to a recent research project we carried out at Company Check - that’s as many as 2.8 million businesses in the UK who aren’t being paid in full for the work they’ve done.
Even more than that, 68 per cent, say they’ve had to deal with late payments in the past. Although if your accounts team spends hours every month sending out overdue invoices you might feel that number’s actually quite low.
Our research took the views of 500 businesses from across the country. It showed that bad debts are something no firm can ever be completely immune to - that’s why it pays to make sure you’re protected.
Do your homework
The simplest way to cover yourself is to make sure you’re carrying out proper due diligence before working with new clients or suppliers. This needs to become an essential part of your finance team’s responsibilities, if it isn’t already.
Things to look for when checking out a business online include the number of years it’s been trading; very often the longer the better when it comes to finding the best, most secure firms to deal with. Compare the firm’s assets with its liabilities. If the second is greater than the first year after year, that could be a sign of mismanagement, significant bank loans or wage costs.
And check out the business’s directors. Can you find them easily, have they had multiple closed or resigned directorships in the past or have they been involved in businesses which are no longer trading. Administration, voluntary liquidation or wind up orders could all be valid reasons, but knowing this in advance is vital.
Think of these checks as a series of ‘tick boxes’ - on their own, none of them are necessarily a deal breaker, but if more than one of these areas gives you cause for concern then alarm bells should start ringing.
If you’re struggling with late payments and can’t spare the time to chase it down and keep running your business the way you want to, consider using a debt recovery service. Many work on a no win, no fee basis and are one option you can consider to help you get your money back.
Lastly, insure yourself against bad debts. Our poll found that just a third of companies were protected against failed payments, despite it being such a big problem. Many of the biggest insurers out there offer competitive deals on just this type of cover, so look around and, if you can afford it, go for it.
Chloe Webber, Operations Director, Company Check