Current as of April 2016
In the current financial climate, it is increasingly more important to collect your debts.
If you have a profit margin of 20% on your sales, did you know that an unpaid debt requires additional sales of 5 times the amount of the original debt to break even? So it is crucial that you get your debts paid promptly.
If necessary, push your client to pay their debt by instalments. Afterall, some money upfront is better than none.
You may want to consider whether to charge interest on any amount outside your terms of trade – however, it’s important to note that you can only charge interest on an overdue debt, if you have properly and legally made arrangements for this in advance of supplying the goods or services.
If you think there is a possibility that you will not be paid, when taking on a new customer or client, think very carefully about whether you supply the goods or services in the first place. This is especially the case where you have not previously dealt with a new client. It’s good practice to ask for credit references before entering into a relationship to safeguard the risk of you not being paid after delivering your goods or services.
It’s important to keep your eye on your debtors, and if one falls behind, then discussions need to be had about how the debt can be settled. Similarly discussions will need to be had about future working relationships and future payment arrangements.
You should be careful not to be unreasonable in recovering debts, as you do not want to lose a good association. Most people will understand your position and cooperate especially if you handle it in the right way.
If it becomes apparent there is a major problem, then the cost of recovery by legal means can prove expensive and time consuming, as well as embarrassing, if the debtor is well known to you.
If the debtor is an individual, or a partnership of individuals, they are personally responsible. If the debtor is a company, or a trust with a company as its trustee, then the directors of the company can be held responsible for the debts, if they knew that the debts could not be paid at the time the debt was incurred. This is not so easy to prove.
If you wish to supply goods on consignment, or ask for directors’ guarantees, then legal advice needs to be sought to successfully protect yourself.
When the shoe is on the other foot and you are the one in debt, you will always find it more productive to get in first to discuss your problems with your creditor, confirm what can be done to pay over time, then make sure you stick to what you said you would do.
As always, please contact us if you need some guidance.
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.