At LawBite we’ve worked with many thousands of businesses and entrepreneurs, so we know that even the most successful organisations constantly battle with demands on their cashflow. Outstanding debts, either short or long-term, can cause a lot of stresses on any business (and the management team!) and very often a lot of the time these can be prevented.
LawBite’s entire business model has been designed to make accessing legal services and experts affordable and easy to manage from a cash-flow perspective. So we thought it was about time we helped provide some more support, guidance and great value new products to help our clients ensure their debtor days are low and cash was free-flowing.
One of our most experienced LawBriefs Diane Pearce has spent over 16 years of her career as a qualified Solicitor advising businesses ranging from small owner managed businesses to large corporations. Whilst there are no fool-proof methods to fully protect your business, Diane wanted to share some simple tips that will reduce your bad debt no matter what the size of your business.
No one likes to have lengthy contracts full of legalese but believe me, they do serve a wise purpose. I am often asked by clients what processes should they have in place when starting up a new business, and having legally enforceable terms of business are critical.
Firstly, having key contracts in place or standard commercial terms with carefully drafted payment terms, terms of lien, termination clauses, and dispute resolution clauses will go a long way to reducing the risk of a dispute.
Secondly, in the event a dispute occurs, there will be a clear process that sets out how the parties should behave when trying to see if a resolution can be achieved whilst trying to preserve the commercial relationship.
Like them or loathe them, contracts create certainty which minimises disputes further down the line.
2. Debt Recovery Process
It is fundamentally important to try and preserve the commercial relationship with clients and that is why many businesses feel like they cannot chase debts when payments are due. Sadly, many larger businesses take advantage of their smaller counterparts by making late payments, which can quickly get out of hand.
Implementing a good debt recovery process with a formal escalation procedure will, therefore, assist you in pursuing bad debts and recovering cash flow. Subject to what your contractual terms say, in the event of non-payment as a business owner, you can then opt to either bring a claim for breach of contract of serve a statutory demand which can be a very powerful tool. Do not feel afraid to use this method as part of the debt recovery process as long as you ensure that it is done correctly.
Remember that you are running a business and you are providing your goods and services for a fee in order to maintain and grow your company.
3. Know your clients!
Another step that many businesses fail to take is to carry out due diligence on their clients from the outset, particularly in circumstances where credit may be offered.
A simple credit check or finance search will often reveal information that could be pivotal in your decision-making process and again in minimising any loss. Any credit offered should be minimal in any event, but, understanding your client in every way and making decisions according to their needs, will help.
4. What else can you do?
Whilst having key contracts in place will always be your best chance of protection, other recommendations to protect and enhance your business include ensuring that you send out timely invoices to clients, diarising payment dates so you do not miss these, keeping in regular contact with clients and taking out trade credit insurance to further minimise your risk…
Whilst you are free to pursue bad debts through the courts, there are other options available to you. Litigation away from the Small Claims Courts can be very expensive and time consuming and should, therefore, be a last resort. By taking the above steps and putting in place these recommendations, you are being proactive, which will ultimately assist you to avoid falling into debt and improve cash flow overall.
If you would like any advice on your existing commercial contracts or debt procedures or would like some general advice from the author of this article, Diane Pearce, please enter an enquiry or call us today on 020 7148 1066 to speak to a member of our friendly Client Care Team.