Latimer Hinks

Darlington law firm Latimer Hinks is urging company bosses to tighten up their credit procedures to avoid being exploited by their customers and other businesses.

As the credit crunch reduces access to conventional forms of funding via the banking system, there is growing evidence that some companies are delaying paying their invoices as an informal way of obtaining credit at the expense of their suppliers.

Mark Gardner insolvency and debt collection expert and partner within Latimer Hinks warns that some businesses within the region are avoiding paying supplier invoices for more than 100 days.

Mark said: “When it comes to chasing debt, some businesses seem to become terribly embarrassed by the issue and fail to challenge debtors appropriately and directly. Small and medium sized businesses need to learn to manage their customer contracts and debtors more effectively. Legally, there are penalties that companies can impose on late payers but, understandably, many are reluctant to do so for fear of losing goodwill and potential repeat business. Nevertheless, there are some steps businesses can take to ensure that they manage creditors and debt more effectively.”

Even before the credit crunch took hold last summer, a study by Leeds University’s Business School reported that the average small or medium sized business wrote off £14,000 in unpaid debts each year. After 15 years of relative economic stability, Mark argues that many businesses have simply become complacent and forgotten how to manage debt.

Mark said: “During the good times when there was ready access to credit, businesses did not follow up on debts as vigorously as they should have. The economic climate has shifted significantly and business practices need to change accordingly. Monitoring customer accounts to flag up trouble before it occurs should be a full-time role – not one that is undertaken on a slow Friday afternoon when someone in the office has a bit of free time.”

To help business owners learn to manage their debts more effectively, Latimer Hinks has published a ten-point plan which the firm is making freely available via its website. The plan includes advice such as requesting trade reference before accepting new business, making best use of electronic communication and how to decide if a debt is worth pursuing.

Mark added: “The market conditions are tough at the moment and only the brave will survive. A good customer is one that pays on time and a successful business is one with the ability to manage its cash flow. Our ten-point plan is a good place to start but if people need specific advice, they should contact a solicitor specialising in debt collection who can discuss all the options to develop a strategy for recovery of debts.”

The Latimer Hinks guide to managing business creditors is available via the resources page under fact sheets