Questionable legality

[Bobby Knight]

I had a thought on trying to limit my losses through bad debt, but I am concerned over the legality...no it doesn't involve a baseball bat...

My debt collector charges me 30% on collections they do. Nothing on those that are unsuccessful. If my business makes an average of 37% GP, I am still making a loss...

Can I create a line item on an invoice equal to 30% of the service/products? Say I call it a financing charge, or such. If the guy pays on time I credit that amount. If he doesn't, I am covered for the 30% that it is going to cost me to collect.

I know that this is going to play havoc with the reflection of my Net and Gross Profit, and there will be some VAT implications, but my main concern is the legality thereof...

[AmithS]

Is you debt collector VAT registered?

[Derlyn]

Are you a registered credit provider ?

[Bobby Knight]

Is you debt collector VAT registered?

I believe so...

[AmithS]

I believe so...

And they provide you with a proper tax invoice showing the VAT?

[Bobby Knight]

Are you a registered credit provider ?

No. We have a fitment centre. Sometimes people don't have enough to repair their cars so we help them till month end or such...

[GCE]

Not sure how you price them but can you not mark up 40% and offer a 40% settlement discount if he pays on completion and 25% settlement discount if he pays on the date he gives you.Leaves you with 15% to cover the risk.
If he does not pay on the given date you have 40% to cover costs and it could give the debt collector a 10% discount bargaining chip when he makes the first contact.

Besides the discount giving them a false sense of scoring by paying on time it will be easy for the books and legal.

Just tossing % out there but I would make sure there is sufficient incentive to get immediate payment.

[Derlyn]

I also had losses due to bad dept.
I changed the way I do business. Cash only. No credit.
At the end of the day, my GP has remained unchanged and I don't have any hassles.
Somehow, if people know you don't give credit, they find the money to pay you cash.

Rather let them owe someone else.