Bad debts don’t pay – keeping cash flow under control

Cashflow projections

It has become a common trait for businesses to delay paying invoices due as a way to ease cash flow problems. This in turn can cause serious financial pressure for dependant businesses down the chain of supply. Litigation Solicitor, Stephen McArdle offers some tips on keeping cash flow under control.  

Cash flow is often cited as the number one challenge facing SMEs.  An absence of ready cash hinders the ability to fund a business properly. According to the Insolvency Service, 3,694 company insolvencies occurred during the first quarter of 2016.  This was the first increase since the first quarter of 2014; an increase driven by compulsory liquidations which were at the highest level since the first quarter of 2015.

Whilst the number of company insolvencies was actually lower than the same time last year, the statistics are still alarmingly high and illustrate the difficult financial position of many businesses. However, by being aware of their options and following simple procedures, business owners can minimise bad debts and keep cash flow under control.

For example:

  1. Ensure that terms and conditions are up to date and legally compliant.  This will afford a business with a much better chance of being paid on time and set out the consequences of late/non-payment.  Binding terms and conditions can be easily enforced.
  2. If you are supplying goods, ensure that your terms and conditions have binding retention of title clauses in them which means that ownership of the goods being supplied does not pass to the buyer, unless all invoices are paid.
  3. Carry out regular credit checks and request payments on account where appropriate.
  4. Request payment of invoices as soon as they fall due.  Invoices which are more than 6 months outstanding are far more likely to be unrecoverable and then written off.
  5. Take swift debt recovery action in the County Court.  Most businesses want to avoid costly and time consuming court action and may therefore pay sooner.
  6. For undisputed debts of more than £750, consider serving a statutory demand which is a precursor to insolvency action.
  7. Assess whether the debtor has assets such as equipment or stock which could be seized by bailiffs or may own a property against which a court judgment could be secured.