A healthy business is prepared for all outcomes and fortified against risks that may arise from any direction, whether this is from customers, suppliers, or employees. Business owners must be equipped to face such problems head-on to protect the financial position of the business.
Central to the success of a business is cash flow, which is the flow of cash running in and out of the business. When cash flow is positive, there’s more money entering the business through the likes of sales and investments, but when cash flow is negative, there’s a discrepancy between incoming and outgoing cash. Cash flow is exposed to lots of factors that could push it into an imbalance, such as overdue invoices and bad debts, for which the key is strategic debt recovery.
Sharon McDougall of Scotland Debt Solutions, a Scottish debt help expert, runs through the dangers of having a poor debt recovery strategy and the detrimental effects this could have on company cash flow.
What does it mean to be cash rich?
A business that is cash rich may have an abundance of cash thanks to a combination of profitability, operational efficiency, and strategic debt recovery to minimise the threat from debtors. A cash rich business has measures in place to maintain this position and protect the business from threats, which is where strategic debt recovery comes in.
If your business is cash rich, you may choose to contingency plan by building a rainy-day fund, also known as a war chest. This is where you build up a pool of cash to fall back on in the event of uncertainty or unforeseeable circumstances. A business that is cash rich is also looked upon favourably by lenders and investors and is therefore more likely to be granted credit.
Strategic debt recovery for businesses
Strategic debt recovery is where a strategy is in place to recover company debts. The buildup of company debts can be fatal for businesses, as it sucks away at their financial health and can leave them worse off. Debt recovery comes in many forms, such as:
- Payment reminders: If a payment is overdue, prompt the debtor to make payment by sending a series of payment reminders and reiterating payment details and payment terms.
- Payment demands: If payment reminders are unsuccessful, a final payment demand that introduces the prospect of court action, interest, or a late payment charge may be issued.
- Business debt recovery support: You may call in debt recovery experts to lend a professional hand. Their expertise in effective recovery methods can help recover money from unresponsive debtors.
- County Court Judgement: This is when you ask the court to collect money owed to you through a court claim. If the debtor ignores a county court judgement, they risk a bailiff visit, a deduction from their wages, a frozen bank account, or a charge on their land or property.
- Winding up petition: If you suspect that a business is out of cash, you may petition to wind up the company, also known as a winding up petition. This is often the last resort, as if a winding up order is granted, the business will subsequently close.
If you fail to take any of the above steps once a payment falls overdue, you risk the likelihood of bad debt. Bad debt is when a debt is deemed uncollectible and therefore likely to be written off. Stopping an overdue invoice in its tracks can prevent your business from stacking up bad debts, which can be damaging to the health of your business.