Debtors & Defaulters. How to Limit the Damage!
Your company is growing and you have substantially increased your clients and customers. It goes without saying that there are defaulters among them. Very annoying, but is it avoidable? Frustrating, time-consuming, bad for contact with the clients and suppliers and damaging to your cash flow. How do you avoid this? Or at least limit the damage? Insight in the financial situation of your clients helps. But what also helps is the expertise of an outside party. It will help you sleep better at night What we have, we do not want to lose. And because every human is afraid of losing something, we invented insurances. We make sure that we insure our possession and our travels in our personal lives, and our building in our business life. What about insuring our credit? Oddly enough, that is nowadays not a option for entrepreneurs . Which is crazy if you consider that when one of your clients goes bankrupt, then the damage is substantial. Dozens times more than a stolen car. Now for the good news: you can insure your company for this risk.
Am I In Danger?
You may think that measures won’t be necessary: your flow of clients are stable and they cashflow is healthy and loyal. Sooner or later, you will encounter a client that pays too late, or does not pay at all. In that case, it is wise to be prepared. Start with a critical look at the payment history and credit risk of your clients. You can for example do a credit check for a new potential client. At the Kamer van Koophandel you can request data that will give you the insight that you need.
Mapping Your Destination
You choose to be an entrepreneur and you know that it goes hand in hand with risk. But you have to make sure that you take care of these risks. Has your company been growing? It would be wise to map out your debtors’ ledger. How is the spread of the debtors’ risk? Are you dependent on one particular client? Are you working with less credible clients? In that case it is good to adjust your payment terms, for example by offering a payment plant. The more spread, the better. One debtor that owes you 10.000 euros is a greater risk than ten debtors that owe 1.000 euros.
Do It Yourself or Give It Away?
If you are dealing with defaulters of unpaid invoices, you can still do a lot yourself. Send concrete invoices with correct data and numbers. Establish consequences if the payment is not paid on time. You can do this fully automatic with Creditmanagement applications, like MaxCredible. More important: always write the invoices with a positive tone. Or else you might alienate your clients. Focus on healthy relationships with clients and the will to improve business in the future. Still haven’t gained a result after three reminders? Hire a debt collection agency. Sometimes it can be smart to hire a credit insurance agency. That way you can protect your invoices against defaulters. Atradius can help you with that, for example with the Branche Credit Polis. Simple and transparent: with this credit insurance you know which risks are covered. You choose the ‘building stones’ that you need. This way you always have an insurance that you want, and do not pay for unnecessary risks.
Spend Money To Make Money
Growth means that you have to invest: for example in more employees and workspace. Do you want to finance these costs, then you use cash from your business. But can you afford this? If you do not think about this, then there can be a shortage in liquidity. Nobody wants to look for last-minute investors that may fail to comply or be found, while there are unpaid bills waiting. A good liquidity budget can predict how your cashflow will develop in time. It will bring you an concrete answer on the question if you have to finance your own growth, or have to find an investor.
Ways to limit the risks today:
- Keep an eye out on the financial status of your clients and act on time.
- Determine limited payment terms.
- Check after delivery if your product and invoice is received correctly.
- Follow defaulters on a consistent basis with a Credit Management Tool.
- Hire a debt collection agency when a client fails to pay.
- Arrange a Credit Insurance: you have more certainty on your payments when dealing with defaulters.
