Bad debt is causing this courier company a headache

Working Lunch viewer Stephen Poulter has a problem.

He runs a courier company in Hampshire, and finds many companies just never pay on time.

He says: "It seems easier for customers to just walk away and refuse to pay."

Healthy business

Stephen's company has been going for 35 years.

Altamise specialises in the delivery of parcels, picking them up from local businesses and delivering in the Basingstoke area as well as elsewhere in the UK and beyond.

The company has around 500 customers and sales of over �200,000 a year. There are six drivers working for the company full-time.

The business is steady but it is vulnerable to shocks and swings in the economy.

Bad debt has been the bane of Stephen's life for the last few years.

Poor payers

On average he has to write off �5,000 each year due to non-payment of bills.

" It's too easy for customers to get credit and just walk away and refuse to pay," says Stephen.

The problem is such that Stephen has even resorted to using a debt collection agency to retrieve funds.

Stephen has tried to get people to pay on time

The trouble is that you have to pay these firms upfront and you are not guaranteed to get your money back.

Effort

Stephen has tried to get his customers to pay on time.

He makes his terms clear when the contracts are signed and he sends out regular reminders to his customers.

He suffers because the late payments mean he has to go overdrawn to pay his bills. This in turn costs him more money in bank charges.

"One or two companies paying late can hurt, but when it's four or five, that's serious," Stephen complains.

"You just can't get money within your terms without lots of aggro."

Advice

Stephen spoke to local business adviser Colin Close for some advice.

You can present yourself at your local county court and make a claim against that person Colin Close

Colin built up a successful piping company and now tries to help other firms and entrepreneurs solve their problems.

Colin says the paperwork is very important.

"You have to clearly identify your terms from the outset," says Colin.

"You must then log all calls and letters and notes of pursuits that have been made.

Then, if necessary, you can present yourself at your local County Court and make a claim against that person."

Laws

There are laws now laying down that payment should be made within 30 days, unless the parties agree otherwise.

Then interest can be charged, the current rate is 12% and compensation is payable for costs incurred trying to recover the debt, from �40 to �100 depending on the sum involved.

The recommended course is to send a formal letter to try to get the money, then, if you choose, you can take the customer to the County Court.

Don't leave it till it's too late, and you really need the money

More often than not that means the Small Claims Court, which has a fixed rate of charges.

Alternatively, there's a new service - Money Claim Online - offered by the courts which allows everything to be done on the internet.

Of course, the threat of court action can sometimes backfire.

As we've reported in the past some companies think that this threat can often lose your customers.

But as Colin says: "A little fear is no bad thing if it keeps your business in profit."

But there are other options.

Alternatives

Most trade associations like the Chambers of Commerce can run a credit check on your client before you start doing business with them.

And you should always anticipate lethargy on the part of your client and work this into your financial planning.

"Don't leave it till it's too late, and you really need the money," says Colin.

Stephen Poulter runs a good business. He provides a service which gets packages exactly where customers want them - when they want them. So why is he under threat?

It's simple. Some people just don't pay their bills. Or the cheques bounce and the credit cards are turned down.

It makes all the difference between having an overdraft and staying out of debt.

Just think...

Why does Stephen want to avoid having an overdraft?

Why do people who don't pay their bills add to the costs of a business?

When the cash doesn't flow...

A business relies on cash coming in because it knows that cash must go out. The trick is to make sure that the money comes in before it has to go out.

If there is enough cash in the kitty to pay the bills, the business can keep going. If not, the business is insolvent.

Even businesses with full order books can find themselves in difficulties. A full order book can mean having to buy lots of resources to fulfil the orders so money goes out before the customers pay their bills.

The cash crisis comes as a shock to people who run such businesses. They think everything is brilliant because they've got so many orders - but then they look at the bank statements and realise that they can't pay the bills.

They have to negotiate an overdraft, which is expensive - or become bad payers themselves.

Just think...

Explain how cash flow works.

Why is it important for a business to watch cash flow?

Not just the money...

Stephen has tried all sorts of ways of getting the money in.