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What is bad debt?

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Bad debt in the business context

We feel that there is a definite distinction to be made between an unpaid invoice and a bad debt.  Obviously an unpaid invoice can lead to a bad debt if it is not adequately managed.  Late payment of invoices is becoming an increasing problem for businesses as customers manage their cashflow in our challenging economic environment.  If these invoices remain unpaid, they could lead to a situation where the invoice amount becomes a bad debt.

So what is a bad debt?

In our view, a bad debt is an invoice where the customer has decided for whatever reason that they aren’t going to pay.  Often this could be because the customer and the supplier are in dispute over the services / products that have been provided.  Other reasons may be that the customer had previous cashflow problems and now that has resulted in them ceasing trading.  Business failures are on the increase, therefore the prevalence of bad debt is also on the increase.  More and more companies are in the position where they gradually drift from paying invoices late to a point where they cannot pay at all.

The importance of credit management

Taking into account the economic situation and the prevalence of business failures, it is now more important than ever to prevent a bad debt scenario.  Managing late payments can significantly reduce the amount of bad debt.  If you actively manage unpaid invoice collection, you can prevent the scenario when the situation deteriorates to a point where the customer simply cannot pay.  Our focus is on not letting a late payment become a bad debt.  It sounds simple but the priority is on active credit management so that you can limit the risk exposure.

How do we prevent bad debt?

At the Late Payment Service we have a proven process for invoice settlement.  This process is designed to be legally compliant and non-threatening but it is also designed to encourage prompt payment.  We are often asked, when should we use your services?  We usually say that if an invoice is 30 days or more overdue, then there is a likelihood that it could become a bad debt.  That said; we actively encourage our customers to appoint us as their ‘appointed representative’ on the collection of the unpaid invoice amount.  We obtain settlement of over 60% of the unpaid invoices that are given to us to collect.

How to deal with a bad debt scenario?

  1. Appoint a credit control / management company like ourselves to collect the unpaid invoice amount that is owed to you.
  2. If that is not successful, review your options e.g.
    • Action via the litigation route (of course this is more complex and often expensive)
    • Accept the bad debt has happened and ensure that your accounts reflect this

The key here is to act swiftly to avoid having to either litigate or accept the debt status. We suggest that you actively chase the unpaid invoice and ensure that you follow legal best practice.  This is where the Late Payment Service can help.

If you would like to know more, contact us or request a call back.

Author: Late Payment Service Team 2023.

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Some useful tips on managing cashflow

Some Useful Tips On Managing CashflowReading Time: 2 minutes

Why is cashflow so important?

Having a healthy cashflow is vitally important to any business, especially new start ups and small to medium sized enterprises (SME’s).

This is because, without a healthy cashflow position you may not be able pay your suppliers and employees on time leading to all sorts of operational issues that can ultimately lead to the business failing.

Tips for a healthy cashflow:

  • Invest some time and effort in investigating the credit worthiness of your customers.  A bad paying customer is perhaps a customer you could do without.
  • Send invoices quickly.  Do not wait until the end of the month before invoicing as that may mean your customers are obtaining extended credit terms beyond the normal 30 days.
  • Offer a variety of payment options.  Perhaps offer both card payments and direct debit forms of payment via solutions such as Paypal / GoCardless etc.
  • Keep detailed records.  This is fairly obvious, but often businesses (especially small ones) fail to keep accurate records of who owes them money.
  • Schedule your payments effectively.  Ensure that you are not committing to too much outlay during periods of cashflow challenges, i.e. whilst you are waiting to be paid for that large order.
  • Make sure there’s an emergency fund.  Keep a cashflow emergency fund if at all possible.  This will enable you to operate with more confidence should there be an element of late payment and bad debt.
  • Cut Costs. Review all of your operating costs and look to trim down expenses where this is feasible.  Often businesses operate without too much attention of their operating costs, ultimately impacting their cashflow position.
  • Cashflow is as Important as profit.  Making a profit is obviously important but without the cashflow to function then there is no chance to make a profit.
  • Manage credit control effectively.  Have the necessary skills and resources in the business to ensure that your cashflow isn’t negatively impacted by unpaid invoices and then subsequently bad debt.

How can we help?

  • We operate a successful collection service for the settlement of unpaid invoices, helping to maintain positive cashflow.
  • We provide an outsourced credit control and management service for companies that cannot easily provide this function from their in-house team.

Contact us if you would like to know more.

Author: Late Payment Service Team – 2023

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Is there another banking crisis on the way?

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What is the immediate impact of the collapse of the Silicon Valley Bank?

A recent CNBC article stated ‘this is not another banking crisis, analysts say — it’s ‘sentiment contagion’ instead’.

However the key points in this article did give rise for concern for US businesses.

Key points:

  • The collapse of U.S.-based Silicon Valley Bank, the biggest bank failure since the global financial crisis, sparked a sell-off in banking stocks as contagion fears spread.
  • The S&P 500 Banks index climbed 3% on the following Monday, but remains down 22.5% over March, while in Europe, the Stoxx 600 Banks index closed 1.7% higher Monday but has shed more than 17% this month.
  • Citi concluded that, in the absence of a clear explanation for Friday’s stock price moves, we are in an “irrational market.”

Confidence is falling in the financial stability of the US banking system.

So what does this really mean for US businesses?

To be honest we are not sure, thats the problem, no one really is clear on the state of the US banks.  If the financial analysts were clear they would be expressing far more confidence than they are today.   Lack of confidence breeds fear, fear breeds panic and so on it goes until we have another financial crisis to manage.

All of this is likely to mean that more and more US based businesses will be tightening their belts and managing their cashflow, unpaid invoices is likely to be the obvious result.

We can help support this via our unpaid invoice collection services, no settlement, no fee.  We are here to help!

Author – Late Payment Service 2023.

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Credit Control as a Service

Credit Control As A ServiceReading Time: 2 minutes

What is Credit Control as a Service?

Put simply, Late Payment Service provides an outsourced credit control and management function for small to medium sized businesses.

The function is outsourced to us, we provide this service as if we were employees of the business but our costs are significantly lower than employing skilled and experienced resources to do the same tasks.

Our overview video is available for more background information.

What are the advantages of the service?

  • We have the skills and experience to reduce credit risk and the negative impact on your businesses cashflow
  • We work on different levels e.g.
    • Level 1 – our basic service is limited to credit control services for the settlement of unpaid invoices, no monthly retainer and standard commission rates apply for settled invoices
    • Level 2 – ideal for small businesses, those who need some up front credit risk reduction and perhaps have a number of late payments to chase on a monthly basis.  A small monthly retainer applies but there is a 10% reduction on the collection commission for settled invoices.
    • Level 3 – applicable to businesses that need frequent credit control services and have numerous late payments that need chasing for settlement.  Acting as your appointed representative, we manage the risk of unpaid invoices tuning into bad debt, ensuring that cash flow isn’t negatively impacted.  A monthly retainer fee applies but there is a 25% reduction on the collection commission for settled invoices.
  • We operate a customer portal.  We are fully transparent with our customers on the work we are doing to reduce the level of late payment and unpaid invoices.  Each customer has a dedicated area where they are able to monitor the progression of their collection activities and also communicate directly with their agent.
  • We provide a dedicated credit control agent for every customer.  This enables the agent to become familiar with their customers business and their credit management requirements.
  • The service is cost effective and risk free from a customer perspective.

Late Payment Service Limited is based in the United Kingdom (UK) but provides this service for both UK and United States (USA) based organisations.

Contact our team for more details about how to onboard as a customer.

Author – Late Payment Service – 2023