Dave Brabants, founder of the Waterproof Box Company, is clear about the need to keep a firm check on your debtor list. In his view, it’s a key part of running any business – whether, like Brabants, you are selling waterproof equipment boxes to TV production companies or widgets to widget shops.
The nature of the business does not matter. All companies have to get paid somewhere along the line and, if you don’t clearly set out your stall, then it can be far easier to make the sale than it is to collect the money. That is Brabants’ point: he has always let his customers know what his terms of business are and has run into few debt recovery problems as a result.
The Waterproof Box Company is signed up to the Better Payment Practice Group’s code of practice. The government-backed partnership between the public and private sector promotes an understanding of credit issues. The site names and shames some of the slowest paying companies.
Brabants notes that being a signatory to the campaign does not necessarily confer particular advantages other than being another reminder to customers that you take the issue seriously. “If we all worked around a 30-day rule for payments then it would save an awful lot of businesses from going under.”
Poor cash flow or too many debtors are frequently cited by the Small Business Research Trust as one of the most important problems facing small businesses – second only to low turnover or lack of business in the first place.
In the past loss of market was the primary cause of business failure. Today it is more likely to be due to management failure, with bad debts, lack of working capital or cash flow, and poor handling of overheads the top three culprits.
Add to that the fact that small businesses represent the overwhelming majority of insolvencies. Bad debts kill small firms. And fast-growing businesses can be particularly susceptible, due to laying out cash quicker than they can get it in. Therefore, you owe it to others to pay on time but also to make sure you are paid on time. As if a client decides he can treat one supplier poorly then it becomes easier for him to start doing the same to other firms.