ICSM in Somerset whose members are largely in the haulage, courier, printing and signage industries keeps firms informed of companies in trouble or who are considered a bad risk. Their CEO Ian Carrott has issued a warning after charting the rise of the level of debt highlighted by the collapse of Carillion who regularly paid on 120 plus days.
“Over 17,000 businesses went into liquidation last year,” he says, “that’s one in every 213 companies, while personal insolvencies were just below the 100,000 mark. In a tight economic situation, it’s hardly surprising that holding onto payments has become standard company policy with so many firms, and why extracting unpaid bills from customers can be such a time consuming – and often unfruitful affair. Why pay interest on your borrowing just to keep a supplier happy?
“The problem is two-fold. Firstly, holding onto bills for as long as possible is still seen as acceptable practice – even for profitable companies with cash in the bank. The Government has been making a lot of noise on bringing in new codes of practice, but these are still not in place; and, when they come in, who will be enforcing them? For a far more sensible approach, just look to Germany. Secondly, when it comes to recovering overdue debts, suppliers are effectively fighting with one hand tied behind their backs. The debt recovery process is long, expensive and ultimately uncertain.”
This publication has reported on firms who have been owed cash for work and have spent time and money trying to recoup the debt to no avail”
This publication has reported on firms who have been owed cash for work and have spent time and money trying to recoup the debt to no avail. Sometimes it is best write off the amount as a bad debt if the company goes bust but if they continue to trade then the advice from ICSM is not to give up but to continue chasing the late payer and to stop trading with them until the account is settled.
Carrott says that before you start trading with a new firm it is best to check the customer’s credit worthiness – not just at the outset of doing business with them, but at regular intervals thereafter. He says: “Next, establish reasonable credit terms with every client – and stick to them. If a new client won’t buy from you because of your terms, you're better off without that client. And if you have to chase a client for money owed, and do it firmly, politely and professionally, you're unlikely to lose your customer.”
His advice when a client fails to pay is to start the recovery process earlier rather than later. He comments: “Kick off with the letter that lets them know they will be incurring a penalty and be put on stop and let them know you will see the process through. Apart from anything else, if they are struggling it’s likely you will get paid ahead of other creditors.”
ICSM also warns about using debt recovery companies that insist on payment up front. He concludes: “The ones to trust are those whose fees and outgoings are totally transparent and based on results plus incurred costs. A good recovery company will also look at a debtor’s current situation and give you an honest appraisal of your chances of ever recovering your money.”
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