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Bad debts for SME’s - recognise the early warning signs

The lack of available finance in the economy has meant that businesses are increasingly looking to their suppliers for credit. 

The result of this for many SME’s is a build of trade debtors (and a wide range of excuses given to their credit controller). With this backdrop, it is fundamental for SME businesses to recognise the early warning signs of debtor problems – for example:

  • industry rumours that the debtor is experiencing financial difficulties
  • debtor’s sector adversely affected by macro-economic trends (such as those experienced by retailers over the last year)
  • payment terms change/payments are missed
  • management at the debtor become elusive and do not return calls/other correspondence.

Late invoices should be flagged to senior management as soon as they become overdue. Unless it is an immaterial figure, the account should then be reviewed weekly – the likelihood of collecting an account reduces as each day passes.

In my next blog I will provide some ‘best practice’ guidance on how to manage slow paying accounts.

Julian Dobbin is a partner at Mercer & Hole. The views given in this blog are personal to the author.

 

 

Date: 3rd July, 2009
Author: Julian Dobbin

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