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Top Tips For Bad Debt Prevention

Things to consider in order to try and prevent your business experiencing bad debts in the future.
by

Verity Grigg

on 27 October 2011

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Transcript of Top Tips For Bad Debt Prevention

A Presention by Verity Grigg
Solicitor and Director
Mercian Law Limited Our Top Tips For Bad Debt Prevention In order to try and prevent your business experiencing bad debts in the future, I suggest the following should be considered:
If possible you should request payment in advance or on account, at least to cover your overheads;
Maintain good customer relationship management and set reasonable customer expectations;
Do not undertake work until your terms of business have been signed;
Carry out credit checks on all customers or research who you are contracting with.
Taking on new customers can be high risk. Having agreed costs upon commencement, it is important to meet expectations set. If your terms of business are not observed or pursued with regards to billing, this will inevitably create pressure on your cash flow and incur time in chasing outstanding bills. Know your Customer Try and obtain as much information about your customer as possible. Ongoing monitoring of your business relationship will assist you to understand the nature of your customers business. The quality of communication is key!
You could use a standard pro forma to be completed by customers providing personal and company details. This information will be useful if problems develop.
Depending on the value of the contract, you may also consider obtaining:
Bank References
Trade References
Credit References - The three main agencies are:http://www.callcredit.co.uk/
http://www.equifax.co.uk/
http://www.experian.co.uk/
Search the Register of County Court Judgments at: http://www.trustonline.org.uk/
A report will cost £2
Company Searches at: http://wck2.companieshouse.gov.uk/ Draft and implement a credit management policy and statement Your normal payment terms should be clear
Have effective accounts reporting and monitor and analyse data
Inter departmental liason and signaling when issues arise
Clearly define credit control system detailing when happens if a customer fails to pay in your usual payment terms
Get your staff on side - bill delivery isn't the end!
Post invoice procedures should be regularly reviewed and updated. Make sure you do this or delegate it.
There is no definitive credit control system as each company is different. Unpaid Debt or Genuine Dispute Which one of these is your debtor?
Can't Pay?
Don't pursue!
Loss of income
Low Income
Over commitment
Increased/ unexpected expenses
Won't Pay?
Pursue!
Witholding money on principle
Working the system
Ducking responsibility
Neither Can't Pay or Won't Pay
Maybe Pursue
Genuine Dispute
Disorganised
Third Party Error Other Considerations Does your particular industry have guidance or a code of practice? If so obtain a copy and check the recommended debt collection procedures you should be following.
Be careful not to breach the following:
S40 Administration of Justice Act 1970
" Harass the other with demands for payment which, in respect of their frequency, or the manner or occassion of making any such demand, or any threat of publicity by which any demand is accompanied, are calculated to subject the debtor or a member of their family or household to alarm, distress or humiliation."
Protection from Harassment Act 1997
"Must not pursue a course of conduct which amounts to harassment of another, and which you know or ought to know amounts to harassment of the other."
It is a criminal offence and civil remedies are available to debtors in the County Court It is pointless to:
Pressurise a debtor who can't pay
Ignore claims that the debt is disputed, obtain as much information as possible and reply accordingly
Refuse to deal with debt management companies
Failing to investigate a query or dispute
Not stopping collection activity while investigating a reasonably queried debt, you could be wasting your money
It is more effective to:
Communicate with your debtor pre-action either by telephone or e-mail
Communicate with their debt adviser
Know the debtor, obtain a financial statement
Tailor your debt recovery action accordingly Finally Good Practice = Good Business
Following these top tips will assist in settling claims, and meeting your commercial objective by working in partnership with your customer. Contact Mercian Law Limited
Greyfriars House
Greyfriars Lane
Coventry
CV1 2GW

T: 0844 736 1980
F: 0844 736 1975
E: verity.grigg@mercianlaw.com
w: www.mercianlaw.com
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