'Let's Talk Bad Debt' - How SMEs can tackle payment shortfalls

Blog

By Bibby Financial Services

27 Jun 2019

While bad debts will have a negative impact on any business’s cashflow, the threat is much more acute for SMEs where margins are often tighter. These payment shortfalls are also more common than is often assumed, with our research showing that over a third (34%) of Irish SMEs have incurred a bad debt over the past twelve months. Those operating in the transport and services sector are even more exposed, with 44% and 39%, respectively, suffering from bad debts in the last year.

The sums involved can also be considerable. Those responding to our Q1 SME Confidence Tracker were forced to write off an average of €22,000 – with over half suffering losses above €10,000.

To help tackle the problem, we launched our ‘Let’s Talk Bad Debt’ campaign – with the aim of helping SMEs ensure they receive prompt payment from their clients and customers. As part of the campaign, we aim to provide practical tips and advice, and describe simple steps that all businesses can put in place to better protect their cashflow.

Chase invoices persistently, but politely

Once the payment is late, get in touch with your customer to find out why they’ve not paid. Speak to the right person and ask them for a date when they can make payment. If they don’t reply, or miss the deadline, call and email them again. It’s always helpful to be polite and firm. Being confrontational isn’t going to get your invoice paid any faster, and could even lose you a customer.

Offer alternative payment terms

In many cases you’ll find that your customer isn’t avoiding paying you, but more likely because they’re facing issues. When you talk to them, see if you can work out a payment plan, or offer a good faith payment now and the rest at a specified date.

Add interest or late payment charges

Remember that you are legally entitled to add late payment interest once an invoice has passed your payment terms (usually 30 days). You can also make a fixed late payment charge to cover your costs of recovering the debt. However, you should let your customers know this at the outset and include it on your invoices.

Remove credit terms for persistent non-payers

If you have customers who persistently pay you late, consider reducing or removing any credit limits that you’ve agreed with them. You should reference this in your Terms and Conditions from the outset.

Legal action as a last resort

If you’re not getting anywhere recovering the money you’re owed, or your customer consistently misses the deadlines you give, send a polite but firm email and letter giving them seven days to pay before you intend to take any legal action to recover your money.

Adopting these practices should keep your chances of incurring a bad debt to a minimum. But, if the problem persists or your business is particularly at risk, you may want to consider taking out Bad Debt Protection. For any questions on preventing bad debt and protecting your cashflow, please do get in touch with one of our financial experts today.


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