By Martin Cork, Debt recovery solicitor for Freeth Cartwright
As the end of the business year approaches, many finance directors and accounts departments are looking for a way of generating cash, either to give the books a boost before the end of the year or to start the new year off on a better footing. While some may turn to sales or marketing initiatives, the answer for many companies may be within the existing accounts of the company: debt.
One of the side effects of the recession has been the weight of debt that companies are labouring under due to other companies failing to pay for their goods. This is why there is really no such thing as a “recession proof” business because even businesses that are able to continue trading profitably are becoming ever more burdened with bet due to issues facing trading partners.
Especially in cases where the trading partner has had a long established relationship with your business, there is a temptation to continue sitting on the debt, hoping that when the economy recovers, the outstanding sum will be paid in full. However, in many cases, this is an unwise approach.
When it comes to debt recovery, it pays to be first in the queue and it pays to be the one shouting the loudest. Specialist debt recovery departments within solicitors are able to take on the debts for businesses, taking the hassle out of chasing after the debt and standing the best chance of recovering the finances.
Companies will often pay debts immediately when a debt recovery team is involved in order to prevent the escalation of the situation. By sitting on debt and not acting quickly, creditors run the risk of having any chance of getting paid eradicated in the event that the debtor collapses.
Burdening the finances of the creditor and preventing further growth in the coming year, large debts expose creditors own finances in already fragile trading conditions. However, this is cash that companies could probably generate by getting a handle on debt recovery and credit control within their business operations.
The simple rules are:
- To know who your clients are by getting as much information as possible about them for invoice purposes.
- To act quickly when debt arises, ideally reducing so-called “debtor days” , i.e. the length of time it takes companies to be paid for their services to the bare minimum
- To act robustly to demonstrate that procedures are in place
Bringing in a third party is usually one of the most effective strategies to de-personalise the situation and ensure that debt is paid quickly and efficiently.
The end of the tax year is the ideal time to take steps to recover some of the debt your business may currently have. With tax bills looming and a new year approaching, an injection of cash from existing debt is always welcome and could be the impetus your company needs to enjoy a profitable and successful 2013/14.
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