If a business is approaching insolvency, efforts to collect overdue invoices must be maximised to generate the best possible return for creditors and exhaust the possibility of company rescue. Paired with the guiding hand of a licensed insolvency practitioner, an effective credit control system can pull a business from the brink of insolvency.
A stringent credit control strategy is a basic requirement for any operational business to reduce exposure to financial risk, keep on the tail of creditors and actively track and chase outstanding invoices. If a business fails to invest in its credit control systems, outstanding invoices can go unnoticed and unenforced which can be damaging to the company cash flow.
A firm credit control strategy can shield a business from avoidable bad debt and help replenish company cash flow which is the lifeblood of a business. Jonathan Munnery, a company debt specialist at UK Liquidators, looks at how cash flow problems fuelled by unpaid invoices can increase insolvency risk.
All businesses rely on cash flow to cover essential outgoings, maintain company operations and pay staff wages. Insufficient cash flow cuts short the life of a business and triggers the countdown to insolvency. While encountering late payers is part and parcel of running a business, a stern and uncompromising credit control strategy can prevent a poor payment culture.
A business with a weak credit control system can rapidly snowball into debt if company cash flow is not replenished and the root of the problem is not tackled. An increase in late or non-payments can push the business into rapid decline and cause a domino effect of financial distress.
A strong credit control system covers all contingencies and underlines the importance of a responsible payment culture. This may include integrating technology into the due diligence process, upgrading invoicing systems to outsourcing credit control.
This stage is instrumental for measured risk-taking as prospective clients are rigorously assessed for creditworthiness, checked for insolvency red flags and financial health monitored.
Invoices must be issued with sufficient notice to give clients ample time to set aside funds and schedule the payment. Larger businesses often have payment run deadlines, so if an invoice is issued late, this may be delayed until the next payment run which could cause a cash flow gap.
These must be issued ahead of the due date to prompt payment. Payment reminders must include relevant information, such as payment details, alternative ways to pay, payment terms, and next steps if payment terms are breached.
If payment terms are to be taken seriously, they must be enforced when breached. Payment terms establish a protocol for a breach of payment terms, including late payment penalties and interest.
If the business accumulates unpaid invoices, consider external creditor support services to achieve a strong recovery rate and reduce the risk of bad debt.
A business cannot function without sufficient cash flow, so once this depletes, company operations will gradually slow down as the business has less fuel in the tank. Collecting company debts promptly is essential for any profitable business, so if a company is on the brink of insolvency – the first call to action should be to call in company debts and roll out a stronger credit control strategy.
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Collecting overdue invoices is a must if a business is close to insolvency. In this article we look at how an effective credit control system can help
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