Avoid the ‘Domino Effect’ in 2021
Nobody could have forecast the impact that Covid-19 would have on the world in 2020, and whilst there is now some light at the end of the tunnel, thanks to people staying at home and the excellent vaccination programme, the loss of lives has been tragic and the financial impact could be felt for decades to come.
The UK government have been very supportive of businesses by offering furlough payments as part of the job retention plan, but as this support is wound down you can feel a financial storm brewing with companies now also having to pay back deferred VAT payments and also starting to pay for the ‘Bounce Back Loans’ that the government have been underwriting.
All of these factors suggest that we have choppy waters ahead of us which will place many businesses under significant financial strain. This will inevitably result in many companies being forced to close their doors, and it’s a sad fact that most failing businesses don’t collapse in isolation. They usually fold owing their suppliers a lot of money.
A domino effect or chain reaction is the cumulative effect produced when one event sets off a chain of similar events.
History tells us that when firms are under this type of financial pressure they will try to delay paying suppliers invoices for as long as they possibly can to try and ease their cashflow. If everybody adopts this approach then the cashflow for the entire supply chain is negatively impacted. When one organisation folds then this could inevitably result in other organisations following suit, thereby creating the ‘Domino Effect’.
This isn’t a new phenomenon, commerce has always had peaks and troughs and whenever there is a downturn there will always be winners and losers.
The disappointing thing is there will be a lot of profitable and well run businesses that simply get caught up in this ‘Domino Effect’ and cease to trade because their cashflow has been choked by their debtors.
How do businesses protect themselves from the ‘Domino Effect’?
The good news is that it’s not rocket science.
Companies need to minimize the risk by demonstrating greater financial control and focusing on their customers ability to pay in a timely manner
Credit Terms
Firstly, they need to realise that when you offer credit terms to your customers you are effectively acting like a bank. Many companies, particularly SMEs, are so excited about winning big orders or contracts that they forget that this is no different to offering an unsecured loan. Have they ever thought that they won that big order was because their competitors weren’t prepared to offer extended credit terms?
Make sure that the payment terms are absolutely clear and have been agreed in writing by the client. Just because the customer is asking for 30 or 60 day terms it doesn’t mean that they have to agree to them.
There is no reason why they can’t demand 14 or 7 day terms, better still get them to pay on a pro-forma invoice.
Credit Control
Have strict Credit limits in place and don’t be seduced by that next big order. This can cause friction between the Sales team and the Finance Department but could pay dividends in the long run.
Request a Purchase Order for the goods or services that you are providing.
Contact the customer before the invoice payment is due to ask them if there are any issues with the invoice and re-affirm the date on which the payment is expected.
Chase the invoice payment as soon as the invoice is due.
Please remember that it is not rude to chase a late invoice, it’s much ruder for the customer not to have paid by the mutually agreed date.
OVERDUE INVOICES
Once an invoice has reached an unacceptably late stage (only you the supplier can determine when that date is), then you have a few options available to you;
- HEAD IN THE SAND APPROACH – Keep your fingers crossed and hope that you eventually get paid
- DEFINITION OF MADNESS APPROACH – Keep doing what you have been doing but expect a different result
- PASS TO A THIRD PARTY COLLECTOR – This sends a serious message to the debtor, which significantly improves your chances of getting paid and the relationship can be preserved
- INSTRUCT A SOLICITOR – Expensive and not guaranteed to win and can damage your relationship with your customer
- ISSUE COURT PROCEEDINGS YOURSELF – time consuming, not always successful and damages the relationship with your customer
If you are looking to utilise a third party collector then we would relish the opportunity to chase these debtors on your behalf.
Our most popular plan at the moment is our FREE Professional collection service
For more information on our hassle-free Overdue Invoice collection services please don’t hesitate to message me at ianm@overdueinvoices.co.uk or visit our website www.overdueinvoices.co.uk
If you have an overdue invoice that you would like us to collect then you can register and submit the details here.
