Bad debts can cripple any business.
Some businesses are lucky enough to operate in industries where payment is made before goods or services are supplied but most don’t have that luxury. For most businesses, getting paid after goods or services have been supplied is a daily issue.
Self-evidently, people don’t pay their debts for 2 reasons –
- They don’t have the money to do so; or
- They choose not to.
The first category brings the “can’t get blood out of a stone” cliché to mind. Usually after spending quite a bit of money to get there, bankruptcy (if the debtor is a natural person) or liquidation (if the debtor is a company) is the end result. In either case, the prospect of a creditor receiving a significant payment is alarmingly small
- In 97% of cases, company liquidation does not result in any return to creditors; and
- The average return to creditors from a bankruptcy is $.02 on the dollar.
The second category, is surprisingly common. In almost 40 years of legal practice, I’ve lost count of the number of times that creditors have suffered from dealing with or continuing to deal with customers who had already exhibited a clear reluctance to pay their debts. Remarkably, but not infrequently, that’s been coupled with an explanation from the creditor to the effect that they knew that a particular customer was a “rogue” but thought that he “wouldn’t do it to them”.
Obviously, no business wants to deal with people who can’t pay them or who are likely to choose not to and relatively simple precautions and internal procedures can dramatically reduce the likelihood of dealing with these types of customers.
Those precautions and procedures revolve around making proper financial and other enquiries about potential customers, having good customer/supply documentation, sensible billing practices and having appropriately trained staff.
At Everingham Solomons we have the expertise to assist all businesses in the design and implementation of customer and debtor control procedures because, Helping You is Our Business.
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