A lot of people are saying that we are talking ourselves into a recession. Even if we don't technically go into recession, just talking about it will probably lead to a squeeze on credit. If you run a business, your customers may think that you are a soft touch, that you can help them out where their bank can't or won't. You cannot afford to accept this situation, it will only make your position worse and you will then have difficulty paying your suppliers, not to mention yourself!
You can do a great deal to minimise late payment and bad debts.
l credit check all new customers and significant existing customers on an annual basis;
l set up credit limits which your customer must not exceed without your approval;
l ensure all new customers are sent letters which clearly state your terms of business;
l do not start work until new customers have signed to accept your terms of business;
l invoices must be accurate and issued on a timely basis, preferably with the goods or as soon as a service has been provided;
l ensure adequate descriptions on your invoices. If necessary, use a covering letter;
l where invoices remain unpaid, issue regular statements automatically, backed up with a series of standard reminder letters (maximum of three). Then instruct a solicitor to deal with any customers who still haven't paid.
Debtors represent a substantial source of business funding. With adequate collection procedures, debts can be quickly turned into cash, reducing the need for external borrowing. Collecting debts is cheap compared to borrowing. In a recession, good debt collection could be your key to survival.
Peter Meredith is a partner with Horwath Clark Whitehill
Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.
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