How to avoid bad debt - Part 1

By Mark O'Rourke, Managing Director, Ireland

20 Apr 2018

The recent Global Business Monitor from Bibby Financial Services Ireland gives us a glimpse into the sentiment of Irish SME’s. When asked which area is the most problematic in managing their business cashflow, over half (57%) of Irish SME’s cited collecting payment from customers on time. Almost a third of SME’s (32%) suffered from bad debt over the past 12 months.

Payment delays can present a real business risk, placing pressure on cashflow and restricting the capacity to expand. Even when a business is thriving, it can take just a few unpaid invoices to create significant issues. Getting debts paid promptly and agreeing reasonable payment terms is crucial for all businesses in all sectors.

The recent Global Business Monitor from Bibby Financial Services Ireland gives us a glimpse into the sentiment of Irish SME’s. When asked which area is the most problematic in managing their business cashflow, over half (57%) of Irish SME’s cited collecting payment from customers on time. Almost a third of SME’s (32%) suffered from bad debt over the past 12 months with the average amount written off being €13,780. With almost 250,000 SME’s around the country, this equates to an incredible €1.7 billion in revenue being lost by Irish businesses every single year. 

You can never guarantee that every single customer will pay a bill on time, but there are things you can do to keep late or missed payments to a minimum. Anticipating the likelihood and potential level of bad debts will mitigate some of the risks and the time spent dealing with debtors. These steps can be used to identify the nature of any potential credit problems and minimise any cashflow issues. 

Know your customers

Run credit checks on all new customers before offering credit terms and set appropriate credit limits. A simple credit check online could save valuable time, and money, in the future. This should be an ongoing process as even the most reliable payers can have a change in circumstances. 

Meet basic requirements

Avoid taking on customers who fail to meet your basic requirements. Whenever you’re given little contact information, prospective customers are hard to reach or they fail to sign a contract, see this as a sign that they will be more hesitant to pay. 

Create relationships

It’s much harder to not get paid by people who know you and your business. Regularly check a customer’s satisfaction for your products and services, and also discuss any approaching invoices due. 

Effective credit control 

Implementing a credit control process does not need to be complicated and can ensure payments are received on time. A structured approach can help reduce the threat of overdue payment. 

Clear payment terms

Make your payment terms clear and consistent from the start and advise customers about any late payment charges to save disputes. Consider including payment terms on statements, invoices and in the terms and conditions of business. 

Bad debt provision

Determine a likely level of bad debt for a particular time period. A provision for bad debt will anticipate the likelihood of debtors failing to make payment – essentially, it’s an estimate of the potential liability for taking sales on credit. Where possible, set aside cash to meet any particular shortfall in the event of a bad debt. 

Alternatively, why not contact one of the team in Bibby where we can advise you of our Bad Debt Protection solutions? Bad Debt Protection will give you peace of mind, safeguarding you against non-payment. It’s ideal if you’ve had past experiences of bad debt, or a few customers represent a large percentage of your total sales. 


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