One of the great aspects of the Christmas break is it allows time to spend with family, to switch off from the pressures of day to day business and reflect on the passing year. Most of us will look to the New Year with optimism and a sense of hope and, in the run up to a general election, our politicians currently holding power will encourage this feel good mood. There will be many upbeat phrases deployed over the coming weeks - 'emerging from recession'; 'the worst is over'; 'economy starts to pick up' - but a cautious optimism is by far the safer route.
A word of caution though. Whilst we may well be seeing the start of the end of the recession no business should neglect cash flow or credit control. The dead cat bounce - when a cat falls from a tall building, dies on impact with the ground but bounces up and gives the appearance of still being alive - is the perfect analogy of those commentators predicting the start of economic recovery.
We still have a huge deficit to deal with and, like it or not, it will need to get repaid. This will mean increased taxes and cuts in public spending. Insolvency body R3 has warned that the next few months could be the most dangerous time for businesses. Matt Dunham, North West regional chairman of R3 and a partner at Grant Thornton, said: “Once the recession ends, there is a delay before businesses start to feel a sense of relief.” R3 estimates the number of corporate insolvencies will reach 26,675 in 2010, with March being the worst month.
However, there are actions all businesses can take to protect themselves from defaulting debtors:
1) Credit policy and trading terms - establish, communicate and enforce
2) Credit checking - new customers. Existing critical customers. Make sure you understand the information you receive
3) Pro-active credit control - regular scheduled contact early in the cycle after invoice issue. Allocate specific resources and incentivise against cash collection targets. Keep close to your customer
4) Invoice queries - deal with them quickly and professionally and analyse what causes them. Go and fix the cause rather than always dealing with the effect
5) Good housekeeping - make sure your data is always up to date - contact details, payments received and correspondence
6) Always do what you say - threatening to escalate a debt and then doing nothing wastes your time, makes you look a chump and worsens the likelihood of forcing a debtor to pay