There might be an adverse effect on your own margins and profits and you might need to reshape your own business to compensate. Speaking to your customer early enough might mean the difference between that customer’s survival and its failure; between keeping those sales and losing them.
If the following issues sound familiar to you then our Restructuring team are here to help you.
My customer is struggling to pay me
There are various signs that your customer might be starting to suffer financial pressure.
The obvious one is that they are slower to pay than normal, but they might start paying lump sums, instead of specific invoices, or start making more frequent, smaller orders. If they stop ordering altogether, it may well be that they have used up their credit with you, and are now running up credit with another supplier.
Whatever the symptoms, if they are struggling to pay you, or suffering from cashflow difficulties, you need to be alert to the signs, your options and how we can help.
How you can help your customer
All too often we see businesses trying to help (e.g. by extending more credit or longer payment terms) without their customer getting to grips with the underlying problems. The first step is good, effective credit control which is alert to the early signs of financial stress and can warn you in time to do something.
What you need to look out for
You should make sure that your retention of title clauses are effective and can be relied upon. Visit your customer and have a look round, if you can. See how busy they are. See if your stock is on site. If they have got your stock they cannot sell, but which you can sell to other customers, take it back, issue a credit note and supply stock that they can sell, preferably on a pro-forma basis.
What can I do now?
If you think you have exhausted all normal credit control procedures, you have stopped supplying your customer and your debt is not being repaid, what are your options?
Essentially, you have no choice but to commence legal action. If the debt is due and payable, you can either seek a County Court Judgement (if the debt is disputed or as the first step before instructing a Bailiff to recover goods) or issue a petition for a compulsory liquidation of the company (a winding-up petition). If you are owed money by a company, there is no need to issue a Statutory Demand for payment; if you are owed money by an individual, you need to go through the process of issuing a Statutory Demand or a letter before action before proceeding to a CCJ or to a bankruptcy petition.
Petitions for winding-up or bankruptcy are not particularly cheap. To wind-up a company your debt must be at least £750, and the Court fees are (currently) £1,630. The Court does not like petitions being used as crude form of credit control; you need genuinely to have reached the end of the road in other collection methods. The minimum debt for a personal bankruptcy is £5,000. Petitions are not straightforward to prepare or serve.
The Official Receiver
In either a compulsory liquidation or a bankruptcy, the Official Receiver (“OR”) is initially appointed, although if you are the petitioning creditor you can usually get your own choice of Insolvency Practitioner to be appointed in place of the OR. The process takes time, and during this time there is a risk that assets will be dissipated and the prospect of any repayment of your debt will be reduced.
Is a petition right for your business?
Incurring the cost of a petition is often not that attractive: you remain an unsecured creditor, and whilst your petition costs rank ahead of almost all other costs in the liquidation, there is no guarantee you will even get that money back.
You might prefer to see if you can get your customer to agree to talk to us. We can (at the very least) then advise you if it is worth taking any further action. Perhaps your customer will accept that his business is insolvent and will take steps himself to commence a liquidation or administration. These are appointments we can take so, whilst we have to act in the interests of creditors as a whole and cannot be partisan in favouring you ahead of other creditors, you will at least know that your customer is taking proper advice and the prospects of a recovery of some of your debt are being maximised.
If you think that you need to start to take recovery action against one of your customers, come and talk to a member of our team first.