Bad debt is a serious issue which affects businesses of all shapes and sizes and typically occurs due to customer insolvency or protracted default. Unfortunately, it is often the case that business owners do not have the resources to pursue legal action as the bad debt has robbed them of all-important cash flow.
In figures published recently by R3, the insolvency trade body, over 100,000 UK businesses are owed an estimated £16 billion by insolvent companies.In the month of June 2016, insolvencies in the UK were up by 13%. With this worrying statistic and more businesses being affected by bad debt, how can you protect your business and minimise the risk
1. Credit Check
Understand your customers and who you will be supplying by performing a credit check on the company. This will help you to set appropriate credit limits.
2. Credit Control
An effective credit control process is extremely important. A full understanding of your sales ledger can help you identify early warning signs and reduce the event of a bad debt.
3. Bad Debt Protection
Another way to protect your business against the risk of a bad debt is to take out a bad debt protection policy. This will protect you and make sure you get paid should one or more of your customers become insolvent or are unable to pay the invoices they owe.
4. Invoice Finance Funders
Such as Calverton Finance provide selective bad debt protection as part of a cash flow facility which enables you to pick and choose which customers to cover, making this a cost effective solution to protect your business.
5. Customer Credit Checks
Most funders can also provide your business with a professional and dedicated credit control service. Performing customer credit checks on your behalf and full management of your sales ledger, thus reducing the risk of bad debt.
Just 4% of businesses in the UK seek bad debt protection when taking out an invoice finance facility as there is a perception that it can be costly.
Bad debt protection costs can be as little as 0.35% which means that for just £35 you can protect a £10k invoice and have peace of mind you are covered.