How to protect your cash flow from bad debt

21/04/2020

The coronavirus pandemic has already had a huge impact on businesses’ ability to operate, with data from the London Gazette showing a surge of insolvencies in March this year.

Statistics have shown that between 10 March and 9 April 2020, 3,736 corporate insolvency appointments were recorded, up from 2,495 in the same period last year.

Not only is the future of the pandemic still uncertain, with many businesses unable to resume normal operations for the foreseeable future, but each new insolvency will have a knock-on effect on the companies they owe money to.

It’s therefore vital that businesses take steps to protect their cash flow from the threat of debtor insolvency. Here, we take a look at some of your options.

1. Get to know your customers

It’s arguably never been more important to know your customers before offering credit terms.

Credit checks offer a valuable way of establishing the creditworthiness of your customers. Remember that this is essential for all new customers, and you should also regularly check existing customers as their position could change at any time – especially in the current climate. 

It’s also important to obtain as much information about your customers as possible. You can achieve this by asking every new customer to complete an account opening form, giving you formal details about the business and the contact information for accounts payable, both of which are essential for effective credit control and in the event you need to take legal action or instruct a debt collection agency.

Also, ensure that each of your customers has agreed to your terms and conditions of sale.

If you’re uncertain about a customer’s position, the easiest path is to initiate open communication with them about any impending or overdue invoices and their ability to pay.

Finding out early on that they may be struggling to meet your invoice deadline will give you time to put measures in place to protect your own business, and you may be able to negotiate terms with them that will benefit you both in the long term.

2. Secure credit insurance

Credit insurance acts as a safeguard against the risks of bad debt by protecting cash flow from debtor insolvency or protracted default.

When an invoice becomes aged or a customer enters insolvency proceedings, the credit insurance company guarantees payment for any goods or services supplied, subject to a designated credit limit.

With this facility 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 find out more about credit insurance, contact our sister company, Hilton-Baird Financial Solutions, who can talk you through the different options and introduce the most suitable credit insurance facility as an experienced commercial finance broker.

3. Consider specialist support

Once an invoice exceeds terms the pressure is on to collect payment as the longer it goes overdue the less likely it is to be collected in full. Add the increased risk of debtor insolvency, and it’s more important than ever to collect payment as quickly as possible.

It can be beneficial to pass any overdue debts on to a debt collection agency such as Hilton-Baird, who will use their expertise to increase the likelihood and speed of collection and leave you concentrate 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.