Partner Article

Can’t pay, won’t pay…tackling the problem of bad debt

CAN’T pay or won’t pay…it’s the dilemma which faces many companies as they tackle the issue of outstanding bills.

But financial expert Deborah Lockwood, of Sheffield insolvency and business turnaround company Graywoods, says it is a problem that should be handled as quickly as possible to avoid a slow payment becoming a major debt.

“It’s no good having your outstanding debts all neatly entered in the ledger and hoping for the best, watching and waiting as the debt rises and nothing happens,” Deborah said.

“It’s a problem that has been highlighted in the past year as many companies faced the issues that lockdowns and a downturn in business created but in fact that is not a new problem at all but is one that too often is allowed to go on without being addressed.

“Certainly the pandemic has highlighted the issue but really it always comes down to the same point - the difference between can’t pay and won’t pay.”

Adding to the problem in recent months, she added, were changes in government legislation which put a freeze on taking legal action, meaning that the option for enforcement were now very limited.

“We do see so many cases where larger firms treat smaller firms with contempt and, by not paying what they owe, will let them go to the wall,” Deborah said.

“But this is not simply a case of David and Goliath - in many cases it can be surprising how companies that work together closely and value the work being done will then prove to be bad at paying the bill.

“When you start to see the payments slowing down, you have to understand the risks that are posed by that non-payment and learn to manage your credit lines at a much earlier stage and much more proactively.

“If credit and/or time limits are being stretched by a client you need to think about whether to keep supplying them knowing there is a problem. 

“It’s one thing for a customer to become a bad debtor but even worse if you still supply them, knowing there’s a potential problem.

“It’s very difficult if somebody you have been working with over an extended period of time and whose business you value creates a serious debt situation but you have to take the steps to make sure the problem doesn’t get worse and have that conversation that defines clearly whether it’s an oversight or cash flow issue.

“And there are times when you have to decide if this has in fact become a toxic relationship and one that no longer works.

“Question if this is really the sort of customer you want and whether the time it takes to manage the relationship is actually worth it.

“The thing to remember is that until somebody pays you for your product or your time you are not a business.”

This was posted in Bdaily's Members' News section by John Highfield .