Don’t fall into the business bad debt trap

But Deborah Lockwood, from the Sheffield office of insolvency and business turnaround specialist Leonard Curtis, says that too many businesses fail to take timely action on outstanding debt.

And by turning a blind eye to the issue, they run the risk of creating a potential problem that could have been avoided.

“Businesses should always be taking stock, examining their balance sheets and be prepared to take action on slow payers and bad debt,” she said.

“The reality is that too many outstanding invoices really can impact a company’s solvency.

“You have to take a look at the ledgers, work out whether or not unpaid debts are going to come in and if there is any realistic chance that those customers are going to pay.

“Leaving the invoices on the balance sheet when you know there is no way they are going to be paid may make it look like the figures are good but bad debtors are of no great use to a business which may be struggling with cash flow itself.

“While some directors may look at selling or assigning these debts, this can often result in additional costs and increase the likelihood of the company losing proper control of their ledgers, immediately creating a bigger problem than they had originally.”

The issue of bad debt, Deborah explained, is one that all companies are likely to face at some point.

“But never forget that even as people talk about living in a cashless society, in the business world cash is king and without properly managed cash flow there is no successful business,” she said.

“For any company thinking that further borrowing is the answer, rather than calling in those outstanding debts, then they have to be aware that borrowing to fuel cash flow is not the answer but that bringing in those debts can assist things enormously.

“Keeping on top of bad debt should always be a good habit to get into, a good discipline which demonstrates that you are aware of how healthy your finances really are.

“And if you do recognise a problem, it is always best to seek advice and draw up a plan of action as swiftly and efficiently as possible.”