Who is responsible for your company’s bad debt?

This week’s blog has been inspired by the very sad and tragic death of Amy Winehouse. I was quite shocked by the comments being left on social network sites. While the majority of the comments were on the loss and the fantastic music she left, people were also commenting on the fact that due to her addictions death was inevitable. That’s not what surprised or shocked me, it was the almost vitriolic attacks by addiction defenders, who will state that an addiction is an illness and no one asks to become an addict. This always gets me as I’ve never seen someone put a gun to someone’s head and demand they drink or snort a line of coke, or pop a pill.

So I’m sure you’re asking what has the above got to do with a company having bad debts and poor credit control. We’ll I hate to be the one who tells you this, ultimately 99% of those companies with bad debts are responsible for their own financial situation. We as business owners have allowed ourselves over the years to grant credit to all and sundry. Like an addict it’s very easy to blame everyone else for your poor cash flow, ultimately it is only when you recognise that you don’t have to give credit to all of your clients that cash flow will improve. When I run seminars on credit control I remind the delegates that they can’t go in to Tesco, Sainsbury’s, Waitrose etc and leave with a trolley load of provisions unless they have been paid for.

I’m certain that there are a number of people who will be reading this and will say that I’m talking rubbish, that without credit their business will wither and die. To those people all I can say is take off the blinkers and face reality. I was speaking to John* who was an old client this afternoon who when we first met had an unhealthy level of overdue invoices and his bank manager was nagging him to do something about getting his overdraft under control. While we were able to solve his immediate cash flow problems by collecting the majority of the debts, we discussed at the time what he should do about providing future credit. His main concern was upsetting his established “clients” who were always late paying.

I managed to convince John to offer a two tier cost structure of either 100% with order or a split payment structure which would carry a 10% surcharge. How this works is very simple, if someone wants credit they pay 10% extra. However, they can only get credit if they pay 50% with order, 25% prior to delivery the final 25% 30 days after delivery. John was telling me that far from losing clients the majority are happy to order using the split payment system, his bank manager even phoned to congratulate him on the improvement to his cash flow!

While I will admit that a split cost structure may not suit all business, the above does prove that you don’t have to stick to historic practices and if you are finding that your “clients” are taking longer to pay and can’t think how to get paid early, please contact us.

*Johns’ name has been changed.

To find out more about David or Deanem Collections Ltd please do visit our website www.deanemcollections.co.uk or send David an email david@deanemcollections.co.uk