Recovering Bad Debt

FocusTechnology

Hi All,

As a small business we have had to deal with nearly £20,000 worth of bad debt in the last 18 months, all of the bad debtors, 3 in all have gone into administration.
This has wiped out our working capital and also any savings reserved for paying VAT etc and we are now struggling, is there any way this bad debt can be recovered or do we just have to live and learn and move on?
Any advice would be greatly appreciated.

Thanks
Andy

NiceGuyEddie_2

I don't know how much can be done to recover the bad debts already incurred, but there are ways of minimising any future bad debts.

Do you have a system in place for credit control? By that I mean, is there a set way in which your customers obtain credit? Do they all fill in a credit application, get credit checked? Once your customers are set up with credit facilities, do you monitor it in anyway?

Apologies for all the questions, but in order to make further suggestions I need to understand how you operate

YEOVILGOM

Agree with Eddie. When you have a bad debt you need to learn and move on. To be frank, and perhaps cruel, to suffer three in 18 months all of which I assume are significant value suggests you have not learnt!

In terms of getting anything back, probably not but what do the administrators or liquidators say in their reports?

Moving forward - you need to have in place a credit policy. How do you assess credit risk when opening new accounts? How do you monitor ongoing risk? What do you do on the first day a debt falls overdue?

Credit Control is what I do - if you want a free chat drop me a PM with a note of your phone number and I will give you a call but in simple terms think about:

Terms and Conditions
Account Application
Credit Checking and ongoing monitoring
When does an account go on stop
How do you chase
When do you instruct a third party to chase (debt collector)
Do you ever close accounts
Do you have to give credit? What sort of business are you in?

JasonLVC

FocusTechnology wrote: »

Hi All,

As a small business we have had to deal with nearly £20,000 worth of bad debt in the last 18 months, all of the bad debtors, 3 in all have gone into administration.
This has wiped out our working capital and also any savings reserved for paying VAT etc and we are now struggling, is there any way this bad debt can be recovered or do we just have to live and learn and move on?
Any advice would be greatly appreciated.

Thanks
Andy

Just to check, for the VAT you charged on your invoice to the now defunct customers, once the debt becomes 6 months overdue, you can reclaim the VAT you paid over to HMRC on those invoices, back from HMRC (called Bad Debt Relief).

For businesspeople who are worried about clients going belly up on big jobs, then I suggest you look at switching to cash accounting for VAT purposes - this means you only pay the VAT over to HMRC once you get paid by the customer. If they don;t pay, you don;t pay. Yes, you'll still lose on the deal as the customer get say £1,000 of stock from you, but at least you get the £175 VAt you charged as well, back.

Rolo_Tomasi

I'm sure you know but you will also get tax relief on the bad debt. This will reduce your profit and tax liability and if it means that you have incurred a trading loss for the year, this can be carried back and used to reduce past years profits thus generating a tax refund.

If you are struggling to pay any tax because of this debt then you should contact the HMRC business support line asap to discuss spreading payments over a period of time.