How to protect your business when your customers go under

What would you do if one of your major customers went under, owing you a substantial sum? Would you be able to recover the outstanding debt - or reclaim goods they had not paid for?

Unfortunately, experience suggests that if you are an unsecured creditor you would be lucky to recover a few pence in the pound - and in most cases you would receive nothing at all.

Your best course of action is to take precautions now to limit your exposure and minimise the impact on your business of any customer insolvency.

Basic precautions

Though these are largely common sense, we are constantly surprised by how often they are overlooked:

  • Maintain an honest and open relationship with your customers and encourage them to share information with you
  • Establish clear credit control procedures, make sure your customers understand them, and be seen to implement them firmly and consistently
  • Check credit references before offering credit terms
  • Do not extend credit limits without good reason
  • Monitor customer accounts regularly.

One of the first signs of difficulty is that a customer's payment period begins to lengthen. If this happens, you need to act swiftly. You might, for example, arrange a visit to them to discuss the matter. Ask if you can see their accounts and projections. If you are still concerned, you might suggest that they take smaller deliveries more frequently until the situation improves.

Faster payment

Another way to limit your exposure is to speed up the payment cycle. You might, for example, consider:

  • Restricting terms, say to 20 or even 15 days, and extending to 30 days only where there is a basis for confidence
  • Specifying terms as 'payment received' rather than 'payment sent'
  • Including a reminder of your terms on your invoice
  • Sending out a letter before the invoice is due asking for confirmation that the order was received - this pre-empts the 'I mislaid/don't remember receiving your invoice' excuse.

Contractual precautions

Other possible actions include:

  • Include Retention of Title clauses in your contracts to increase your chances of repossessing any unused stocks of your products held by an insolvent customer
  • Where possible, obtain guarantees from directors or other group companies
  • Where substantial sums are involved, consider taking out insurance against your customers failure to pay.

Tread carefully

If a customer does get in to difficulty it is not always advisable to instigate proceedings too quickly lest you precipitate action by larger creditors who have a prior claim.

In general, you have much more chance of recovering monies owed if a rescue plan is put into place rather than the company going into liquidation.

We can help

As you can see, this is a complex area and professional advice is essential if you are to avoid taking unnecessary risks.

We can advise you on:

  • Establishing effective credit control procedures
  • Minimising the impact of customer insolvency
  • Dealing with insolvent customers.

Call us today if you would like to discuss this matter further.

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant* face to face.
  • Money back service guarantee. All your telephone calls and emails will be answered the same day or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee of £120 plus VAT per month.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com. Our new client services helpdesk is open Monday to Friday (8am to 6pm).

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

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You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.