Even companies with the most rigorous credit control procedures run the risk of incurring a bad debt should a customer fail. For smaller companies, incurring a significant bad debt can result in the end of the business itself.
Of course, there are some important “self-help” steps which every business should take to protect against the most serious risks, such as:
• Knowing your customer – finding out as much as possible about the customer, its financial strength and its reputation for prompt payment. Make this a regular exercise, not just a one-off when the account is first opened.
• Protecting your business – for example, think about getting personal guarantees from directors, or insuring against bad debts.
• Assessing risk – by diversifying your business model and not relying on just one customer, or a small number of customers. Ask yourself how much you could afford to lose, and what would happen if your largest customer went bust.
Business failure is a fact of business life, and companies go bust for all sorts of reasons. New technology replaces old technology, fashions change; business has its own cycle of life.
But sometimes companies fail because their owners and managers are more interested in lining their own pockets than in promoting the success of their businesses, and have a distain for their suppliers and creditors. Often they can get away with it because, despite a range of legal remedies against delinquent directors, creditors are reluctant to throw good money after bad.
To compound the problem, there is a perception – regrettably not always misplaced – that some insolvency practitioners just go after assets that are easy to realise, grab their fees, and don’t do as much as perhaps they could to pursue directors.
The team at tri group has developed special expertise in investigating and pursuing directors and third parties to achieve recoveries for the benefit of creditors. In many cases this provides the only prospect for creditors of receiving anything at all from the ashes of failed companies. We work with solicitors and legal funders all working on the basis that we only get paid if we achieve recoveries.
Creditors can wield a great deal of influence over the choice of insolvency practitioner to act as liquidator or administrator, but only at the start of the procedure. After that it becomes much more expensive and cumbersome. So it’s vitally important to act as soon as you become aware of a potential debt or receive notification of a creditors’ meeting. The outcome of the insolvency may depend on what creditors do in the crucial first few days.
If you have a customer potentially facing insolvency, please contact us. We will be able to provide sensible, practical advice and, if appropriate, arrange attendance at any meeting which is called, usually without charge.