Small businesses: don’t be a victim if your major customer goes under

On January 15th Carillion, the UK’s second largest construction business, went into liquidation after losing money on major contracts and running up debts of £1.5 billion. As with many such collapses the worst affected will be the smaller suppliers and sub-contractors.

In order to minimise your credit exposure to your biggest customers you need to have a clear credit policy in place within your own business. You should decide the maximum exposure you are willing and able to tolerate to any one customer. Consider invoice discounting or credit insurance.

You should have a well-established process for issuing and monitoring invoices. Agree with your customers in writing the amount of time you are prepared to give them to settle the invoice.

For example you could allow customers 30 days to pay an invoice after which time either you start applying interest or you simply chase them up to ascertain the reason for non-payment. After 60 days start applying interest and threaten that if the invoice isn’t paid by a set date legal action will be taken. After 90 days commence legal proceedings. Having a contract that clearly sets out the terms of the credit will be essential if court action is required.

Once a company is bankrupt it is likely you will either have to deal with a liquidator or an administrator. Secured debt will be paid in full before any money is paid to unsecured creditors.

Generally unsecured creditors will have to accept less than 100% of what they are owed, sometimes as low as a few pence in the pound. As such it is imperative that you try to get paid before a bankruptcy event occurs. Talk to us about the best way to achieve this. Contact Graham Purvis on: 0191 281 8191 or email him: gpurvis@robson-laidler.co.uk