Bad debt and your business

[Dave A]

Since June last year I have had an average of R74,000 per month of non-payments and it shows an increase monthly. The main excuse I have received was that the clients themselves were battling with bad payers.

I'm surprised it took that long to hit.

I have probably written off more to bad debt in each of the last two financial years than I have in total over the preceding 20 or more years of trading. Some of it may prove collectable in the end, but I'm certainly not counting on it.

Historically my uncollectables are very low and it was very rare I had to hand clients over for collection. But when the GFM hit I had a month where only 5% of my regular contract clients paid when they should have, where normally it's only 5% that ever needed prompting. It was a shocker.

Perhaps just as well because we were shocked into action. We give generous payment-up-front discounts. We stay on our debtors ledger like a rash. We don't give credit to a new client until someone has signed their life away. We put a stop service on any client in default who hasn't responded to our first collection call. Where clients make arrangements we are very accomodating. Where clients don't make arrangements or renege, it goes straight to our collection agents.

For the 2009 financial year the sheer magnitude of the problem caught me by surprise and we took quite a bath, but for 2010 we made provision for problems in our budget and systems. The changes have worked - bad debt for 2010 is a third of 2009 (below budget, but still way higher than I'm used to). I've implimented even tighter systems for this financial year and I'm seriously considering registering the companies as credit providers so that I can charge admin fees and the like on anyone that stuffs around.

Get a useful lawyer. I say useful becuase you get lawyers who fill in papers and you get lawyers that get your money. Find one who gets your money.

This is proving to be an increasingly rare creature.

...and it shows an increase monthly.

That's the bit that would worry me the most. Getting blindsided is one thing - letting the problem run is another. From June last year to now is a long time to let a trend like that continue. You're probably being too soft and the word has spread - you're being played.

You simply have to change your debtor management strategy.

[murdock]

" I'm seriously considering registering the companies as a credit providers so that I can charge admin fees and the like on anyone that stuffs around."


now i like the sound of that...if i can get more return than i am hving to pay the bank ie 30 % instead of 28 % ....then i become a loan shark/bank and really start making money...and if i have to honour a payment for late payment...charge them R350 like standard does...it all starts making sense...i would then look forward to bad debt because enventually i could stop working and just make money....employ a lawyer and an anaethatist and i can retire on an island.