Did you know that from a survey done in UK, 47% of SMEs have no provision in place for bad debts or unpaid invoices? 34% will rely on legal action should they find themselves in such a situation, 27% would use their bank overdraft facility and 15% even plan to cover their shortfall with their own savings!
Unfortunately, even with good working relationship with suppliers and customers, every businesses will still experience bad debts. For the rare few that don't, they should count themselves very lucky. And for the rest of us, you can either seek solace that you can claim deductible expense when you file for tax or you can TAKE ACTION against your debtors.
Bad debts usually mean that small businesses would be hit with cash flow problems and face immediate pressure on the business. And cash flow problems is one of the main reasons for failure of small businesses.
Also, chasing bad debts can be a very mentally exhausting process. It is frustrating and time consuming. When faced with our first case of bad debt collection, our normal work process was put on a slow down mode as we tried to contact our debtor every few days to follow up. It was totally time wasting! Moreover, it can be demoralizing and draining, affecting your performance at work.
There's a few option for bad debt collection. Before you proceed with the best course of action, you got to assess the situation and weigh your options carefully as every case is different.
Do keep in mind to start recovering your bad debts within 6 years or you chance of recovering the bad debts will be close to zero.
I'll touch on the few options in my upcoming posts:
Legal Action through Small Claims Tribunal
Debt Collector/Debt Collection Agencies
Handling it on your own
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