Do you have Bad Debts in Balance Sheet?

This will help...

A company we recently looked at had a reasonable net worth in its balance sheet. This had played a significant part of the bank’s continuing willingness to support the business (albeit against a secured personal guarantee) but the business failed and our due diligence on the ledger revealed that most of these debts were not collectible! The owner’s principal had used these to prop up a failing business! When debts are not fully recoverable they should be either “provisioned” against, of written off, so the status of the business is truly and accurately reflected .

 

However, why are debts uncollectable?

The debtor would not pay

Why? What was wrong with the goods or services? Was there a legitimate reason not to pay, or was it a “try on”? Yes, people really do this!! A comprehensive paper trail and record of performance would have helped sort the matter. With our background in construction debt recovery we are faced with all kinds of counter claims and excuses which we aim to address to negotiate a settlement.

 

We are currently pursuing a standard commercial debt recovery of over £140,000 where the debtor’s refusal to pay is driven by a single customer having suffered a very minor allergic reaction to the one of the wide range of products good supplied – which cost, literally, pennies. Surely a settlement is appropriate? We’ll let you know, (but we are very confident and already have an offer of £80,000!)

 

The debtor cannot pay

A business can insure against the failure of its customers by taking out a credit insurance policy with one of many commercial insurers, who closely monitor credit reference agencies for warning signs and can advise its clients on the safety of extending credit beyond prudent, or insurable levels. Certainly many businesses were caught by the failure of Carillion, but many had already insured the covenant either directly, or through its ABL provider. Indeed most ABLs insist on credit insurance so the risks of insolvency are mitigated.

Bizarrely we have had several instances of people “knowing better”! A former client of a construction finance client ignored warnings and references as to the credit standing of a contractor customer, and extended credit to a contractor on the basis “he was told they were “solid” by another contractor”. Needless to say the contractor failed and a £40k bad debt put him out of business. (The finance company, prudently, disallowed this debt!)

 

Whilst we tend to deal with the recovery of the ledgers of failed businesses we are more than happy, as part of our growing credit control services, to make recommendations as to how to insure against substantial loss from insolvency.

In all of the costs that a company or business incurs, as part of its profit and loss account, a bad debt is truly the only one where, without doubt, there is no value received.

Request more information on Outsourced Credit Control or a FREE, no obligation APPRAISAL OF YOUR DEBTOR BOOK.

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