When it comes to avoiding bad debt the old adage "prevention is better than cure" is a very useful rule to follow. As we tell any business owner that will listen, it is absolutely imperative that before you extend a customer credit you answer the following questions:
- Does this customer have the financial means to pay?
- Are they prepared to pay promptly or at all?
If the answer to either of the above questions is “no” or “maybe” then your company needs to carefully consider the risks and potential rewards and if necessary be prepared to turn down business if the risk is to great. No doubt many business owners would say refusing business doesn’t make good commercial sense, after all if no one extended credit to customers large swathes of the economy would rapidly grind to a halt. But that does not mean our company or yours has to extend credit to everyone, nor does it mean we as business owners have to accept custom from companies identified as high credit risks.
In our three decades of experience in this industry one thing we have come to realise is that in some circumstances it is simply more profitable to refuse business than to take it.
Let us explain
Yesterday we received a call from a potential new client in relation to our credit control and debt collection services. This company, lets call them Co A from here on in, is a publishing business in the South East of England that sells advertising and they wanted some help dealing with their unpaid invoices.
I spoke to the credit controller from Co A and he seemed like he had a good handle on the business. All agreements are concluded in writing and the client pays an initial deposit in advance, with the reminder being due within 30 days of publication. Co A supplies the client with a copy of the magazine along with their invoice and then uses our late payment letter templates to chase the debt.
So far so good.
Co A wanted to know about our charges, how we collect the debt, what our processes are and our conversation was productive, he seemed keen to move forward and we were all set to send him a copy of our terms and conditions and get the ball rolling.
Prior to entering in to a business relationship with this new client, we did what we always recommend any business does and that is conduct due diligence to answer the two questions any business needs to know.
Can they pay me and will they pay me?
A quick credit check on the Experian Small Business portal tells us that Co A looks like a good risk, they have a respectable credit limit, no CCJs and the accounts look as you would expect. But a look at the main shareholder and director that we shall call Mr B from here shows a very different story.
As it turns out, Mr B is also a director of a number of other companies, but one in particular stood out to us. A quick search of our internal records showed that we had already pursued another company owned and operated by Mr B in April of this year and despite our best efforts Mr B had refused to pay what was owed to our client.
The road to rehabilitation
Now it should be said we aren’t averse to working with companies that we have chased, sometimes things happen in business that legitimately delay payment and some of our longest standing customers met us originally when we pursued them for unpaid invoices.
But we won’t deal with any company that we know is a bad debtor and in our previous dealings with Mr B we knew him to be extremely difficult to pin down. If that wasn’t enough we knew from experience that he had what could at best be described as a “cavalier” attitude to his accounts payable. This is somewhat ironic given Co A’s difficulties in collecting the overdue payments due to them.
Given what we now knew we withdrew from the discussions and made it clear we were unable to act for the company in this regard. This was met with some choice words from Co A’s credit controller (who is probably ignorant of his MD’s history of non-payment in his other businesses) but we have no doubt that had we taken this customer on, we would have faced significant problems in securing payment for our invoices and potentially running the risk of losing both time and money.
These resources are, in our view, far too valuable to waste on high risk clients and much more productively spent ensuring we continue to be available to help legitimate, honest businesses with their credit control and debt collection.
As we said in the very first line of this post “prevention is better than cure” and in this case we are sure we have avoided extremely late payment of our invoices and potentially a damaging bad debt.
Over 150 Years Of Industry Experience
Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.