Bad debt laid bare: Businesses write off £8 in every £100
With businesses writing off £8 in every £100 as uncollectible due to non-payment, we look at the cost of bad debt and what you can do to avoid it.
Businesses wrote off a shocking £8 in every £100 billed in the last year as the challenge of late payment shows no signs of subsiding.
The research from Atradius also revealed that a further 44% of the total value of UK B2B sales were reported overdue in the last year, with many businesses expecting this problem to get worse.
According to the study, 39% of UK businesses expect it to take longer to collect payment next year, with 39% anticipating an increase in the average days sales outstanding (DSO).
The cost of bad debt
Whilst writing off bad debt as uncollectible has an obvious impact on business finances, the true cost of non-payment often extends much further than that.
According to the research, half of businesses have increased the time, cost and resource to chase overdue invoices as a result of late payment.
As well as this, more than a quarter (28%) have had to pursue additional financing, while 26% have subsequently had to delay paying their own suppliers.
This strain on resource and cash flow creates a negative impact which, in turn, spreads far beyond company finances.
How to protect your business from bad debt
Late and non-payment can occur for a number of reasons. Fortunately, there are strategies you can use to reduce the risk and avoid writing them off as uncollectible:
1. Concentrate on your credit control procedures
One of the most important but frequently overlooked elements of the credit control process is the actual process itself. So it’s great to see that 41% of businesses reported that they strengthened their credit control procedures.
Important stages in the credit control process include:
- Getting to know your customers before offering credit terms via credit checks and account opening forms
- Ensuring that each of your customers has agreed to your terms and conditions of sale
- Invoicing accurately and on time
- Keeping in regular contact throughout the credit period
- Having a plan in place for late payments such as charging late payment interest or outsourcing to a debt collection agency
2. Protect your cash flow
Unfortunately, even with the most rigorous credit control strategy in place, there is always a risk of late or non-payment. However, there are numerous ways you can protect your cash flow to limit the damage to your business.
According to the research, 61% of businesses said they have adjusted credit terms for customers, while 53% have offered discounts to encourage early payment.
These strategies help by reducing the cash flow gap between providing your services and getting paid for it.
The report also revealed an increasing number of businesses using trade credit insurance to protect their cash flow. More than half (55%) of businesses said they used credit insurance to manage risk, up from 39% last year.
Trade credit insurance, also known as debtor protection, protects a business’s cash flow from the threat of bad debts, whether due to insolvency or protracted default.
With a suitable policy in place, you can trade safe in the knowledge that if your customer fails you will still be paid for your products or services.
To learn more about credit insurance, contact our sister company, Hilton-Baird Financial Solutions. As an experienced commercial finance broker they can talk you through the different options and introduce the most suitable credit insurance facility for your needs.
3. Consider specialist support
Writing debts off as uncollectible should always be a last resort. If you are struggling to collect a payment, working with an experienced debt collection agency such as Hilton-Baird Collection Services can increase the likelihood and speed of collection.
Whilst outsourcing the collection of an unpaid invoice does come at a cost, it is meagre compared to the cost of writing it off altogether.
The most important thing in this process is not to leave it too late to ask for help as the longer an invoice goes overdue, the less likely it is to be collected in full.
It is even possible to pass over any debt which exceeds a certain length of time beyond terms. Streamlining the process in this way ensures you receive payment as quickly as possible. Plus, a partnership such as this provides ongoing support to your credit control team’s wider activity by allowing them to focus on newer debts.
Do you have any debts that you’re particularly worried about? Get a debt collection quote to find out how much we would charge should you decide to instruct us. Alternatively, give us a call on 0800 9774848 to find out more about how we can help.