Prevention is better than cure…Dec 08, 2012
WHEN business pressures are increasing, the last thing firms need is a substantial bad debt which could wipe out profit for the trading period and mean all that effort and hard work go to waste.
Despite the ‘good news’ that Britain has bounced back from a double-dip recession, and recent reports about an expansion in both business services and job opportunities in Milton Keynes, for many local suppliers, cash flow remains an issue.
There are credit reference agencies that provide information about a prospective customer to help businesses make informed decisions about granting credit facilities. However, the information they rely upon is largely historic and they may have recently suffered a major financial setback, which will not yet appear in such records.
There are, however, some practical steps that suppliers can take to minimise the risk of bad debt:
1 Ensure the business in question is in existence. Companies are often happy to accept an order from a customer who provides only a trading name, without identifying the person, the partnership or the limited company behind it.
If it becomes necessary to recover a debt through the court, success depends largely on being able to identify assets belonging to the debtor. However, if the debtor is not properly cited, this makes the identification of assets practically impossible.
All genuine businesses are operated either by an individual or a number of individuals working together as a partnership, all of whom will have home addresses, or as a limited company or limited liability partnership.
2 When trading with a limited company, additional protection can be obtained by asking the directors to give personal guarantees, possibly even supported by a charge over their property, in appropriate cases. If the directors of the business are not prepared to vouch for the customer’s credit worthiness, it may be necessary to ask whether their ability to pay is adequate.
3 When supplying goods, as opposed to services, on credit, it is always a sensible idea to incorporate a Retention of Title clause into standard terms of trading. The wording of the clause is, of course, vitally important, but it is equally essential to ensure that the conditions of business are properly brought to the attention of the customer, before any goods are delivered.
Alan Hamblett is a Partner at the Milton Keynes office of Shakespeares