In a study by Camrose Consulting Ltd of 6,000 UK companies with a turnover between £2 million and £17.5 million, 42% were shown to have debtors in excess of 60 days.

As a way of getting to grips with your aged debt, you might like to try the following calculations with your own business:

1. Take the value of your trade debtors (or receivables) from the end of last month
2. Subtract the value of billings (including VAT) from last month
3. Subtract the value of billings (including VAT) from the previous month

If you end up with a figure that is greater than zero, it suggests that you have a number of debtors older than 60 days and that you could improve your cashflow and the health of your business by undertaking some measures to improve credit control.

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We find it amazing to work out the value of outstanding debts and to see the time, money & staff companies needed to collect these debts. We have created a credit control calculator that will help businesses to see whether they can benefit from external help.

There are a number of ways that businesses can get on top of their credit control, as well as employing an agency like us. For example:

1. It is best to be consistent with debtors and to ensure that you will make them aware when their payments become due and go overdue. They won’t look upon you as a soft touch
2. It is possible to chase debts without damaging your relationships with your clients. If you are clear with them, you can ask them for the money that they owe. They owe it & it’s yours, it’s OK.
3. You can make them aware of your situation  – “I’m a sole trader & I’ve got bills to pay”
4. You can ask them if they’d rather stage the payments – this can help customers that are having cashflow problems of their own and ensure you get paid rather than waiting for them to slowly go bust
5. You can ask them for a timescale within which they are prepared to pay
6. You can add interest clauses into your contracts
7. You could offer a discount from the bill for early payments
8. You can contact a debt collection agency and ask them to help you collect debts in a sensitive manner – talk to us, we can help!
9. You can explore arrangements with factoring companies who will pay you when an invoice is created, allowing you to improve your cashflow

The problem with allowing businesses to have debts outstanding is that, as we have seen, no company is safe as a result of the financial crisis, recession and continuing slow growth in the economy. It is important not to ignore debts and to adopt a consistent approach. This doesn’t have to take huge amounts of time and, with us, it doesn’t have to cost large amounts of money.

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There are a number of ways of dealing with bad debt. Firstly, it depends upon whether the debt you’re chasing is from a firm that is in administration or not.

It’s best not to wait for a company to go into administration before taking action on bad debt. Once you have done work or provided services to your customer, you are owed money & it is worth having a process in place to take action. Many business owners hate chasing debts as they do not want to feel awkward; a process for overdue invoices can make things simpler as it will ensure that you chase the debtor and feel comfortable about doing this – if there is a clear, routine process, it is easy to be consistent with debtors and it allows you to refer clients to your debt collection process rather than worry about your relationship being damaged.

Part of that process may be debt collection or credit control, services that we would love to undertake for you or that you. Having a process that includes these elements is important as failing companies will often find it difficult to meet their obligations. It’s easy to think “X always pays late & so there’s nothing to worry about” but this person may be paying late because they’re in financial trouble. If you put off collecting debts until it’s too late, you risk not being able to recover the debt at all. When this happens, you might as well have not done the work in the first place & saved yourself the hassle.

There are signs that a company might be failing or that you won’t be paid:

1. Payments are increasingly overdue
2. They don’t call you back
3. They claim that the cheque is in the post

You might consider setting up a bad debt provision in your accounts. This doesn’t remove the entry from your sales ledger but it does get accounted for in the same way. It is best to do it this way because once you permanently write off bad debt you will lose track of it; if you provide for bad debt, however, you’ll see in your aged debt analysis that the amount is still owed. This can help if you’ve not yet decided to write-off the debt.

If the firm is in liquidation, you can write off the sales ledger & reverse the bad debt provision.

We would obviously prefer that it did not come to this for you. Bad debts can have huge effects on a company in terms of lost income but also lost time spent chasing debts. It can be really draining. If you can ensure that your credit control process ensures that customers are clear about your payment terms, that they are clear about what will happen when they go overdue and that they are chased up regularly either by your team or by a debt collection agency, you will minimise the debts that go overdue, giving you a healthy cashflow and minising your bad debt risks.