Managing Bad Debt

Manage Bad Debt

Starting up a new business or running a business can expose you to debt, often for reasons that are completely out of your control. The difficulties of starting a new business and sustaining it successfully are seen in the number of businesses that fail each year. Over the last two years the figures for the number of businesses becoming insolvent has risen dramatically. This increase across all major sectors in the UK business marketplace shows that managing bad debt is essential for the success of your business.

Insolvencies are a very real threat for all businesses but particularly if you are a new small business, sole trader or partnership, your company is more vulnerable to experiencing problems. Your company can face debt problems if your customers do not pay on time, which in turn can affect your cash flow and ability to pay suppliers. The inability to mange bad debt cannot be ignored for long, before the business encounters serious difficulties.

What should Small Businesses do to Manage Bad Debt

If you are a small business facing commercial debt you need to act promptly. This is especially important if you are a sole trader as under UK law if a company trades whilst insolvent, the owners can be liable for wrongful trading. There are options available for small businesses particularly if the business could return to being profitable after the debt issues have been resolved. This is true in the case of:

• Businesses that suddenly find themselves paying out for a large unexpected expenditure
• The company's financing facilities are unexpectedly withdrawn
• The businesses losses are only temporary, perhaps due to seasonal factors

However to manage bad debt successfully it is important to use good risk management before the threat of insolvency arises.

Small businesses can protect themselves by putting simple credit checking measures in place, but ongoing monitoring is just as important so that your business can make informed decisions all the time.

CheckSURE is a powerful online tool that allows businesses and individuals to check a potential customer's credit worthiness instantly, before a commercial relationship is started. But along with our comprehensive credit reports, we also offer 'Keep it Live' reports to monitor your customers. An e-mail alert system offers updates on changes to all limited companies that you have selected to monitor. You will be alerted to CCJs, credit limit changes, new annual accounts filed and new directors so that you can keep a continual eye on the financial performance of your important customers and suppliers.

So to effectively manage bad debt it is important to:

• Always carry out a basic credit check with a potential customer or supplier before starting a new commercial credit arrangement.
• Continually monitor the company using checkSURE 'Keep it Live' reports so that you aren't caught out if their financial circumstances change.
• Make sure that your customers stick to the payment terms that you have set.
• Maintain good credit control systems

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