/4 Signs You Need to Write Off a Debtor

4 Signs You Need to Write Off a Debtor

4 signs need write off debtor

 

Has your business become weighed down with clients that are less than ideal? Are you battling with certain clients every month just to have your invoices paid? Are some debtors causing you more grief than their bills are worth?

Regularly assessing your client base to identify those who are not serving the best interests of your business is integral to efficiency, profits and growth. Make no mistake, profitless clients will hold your business back if you allow them. The sooner you cut them loose, the sooner you can take on new clients who pay on time, improve your cashflow and the sooner your venture can sail forward to achieve its true potential.

But how do you know which debtors to cut loose and which ones to be patient with? Here are four signs to look out for:

 

Signs need to write of debtor

Debtor flatly refuses to pay

Of all the debtors you don’t want, its the ones who simply won’t pay. They have ample available resources but refuse to part with them because they are notorious non-payers. They consistently attempt to dodge payment by alleging defects in products and services supplied to them and create conflicts. Dealing with such clients is exhausting and can ultimately result in a reduction in the value of your work.

Such clients should be sent a formal demand for payment, left in the hands of a debt collector and informed that their contact with you is at an end.

 

Excessive resources are consumed collecting a debtor’s payment each month

Chasing bills costs a business time and money. An appropriate amount of resources is rightly dedicated to invoicing and reminders. However when collection costs become disproportionate to the fees they seek to recover, adjustments must be made.

Calculate what it costs you in man-hours, stationery, sundries, debt collection fees and legal fees to collect a debtor’s invoice in full each month and deduct this from your profits from that debtor. In some cases this may reveal that your per unit or per hour rate is far below any discount you would ordinarily agree to. If you discover that a client’s behaviour is causing a drastic reduction in profits, you may be better off focusing those efforts and resources on finding a new client that will pay on-time every month.

 

“Problem” clients

With “problem” clients, the debt is usually just the tip of the iceberg. No one wants to deal with them or do their work because they don’t treat your business with respect. They often demand that their work be done “urgently” and in priority to that of other clients. They are often condescending, belittling and make you feel incapable.

Depending on the personalities of those dealing with them, it can often result in personal conflicts which can flow on to cause friction within a business. Morale and productivity suffer and higher staff turnover may even result.

Problem clients that don’t pay are simply not worth holding onto for a plethora of reasons. While they may eventually bring in some profits, the stress and potential to inflict permanent damage on your business is not worth it.

 

Impending insolvency

These are clients that are on the slippery slope to impecuniosity, rendering them incapable of paying your bills no matter how much they would like to. They may have passed a credit check two years ago but unforeseen factors have triggered a downturn in cashflow and suddenly red flags such as a poor credit rating, receivership, administration or court proceedings have appeared.

 

The earlier signs of insolvency are picked up, the better. Lookout if your debtor starts downsizing, cutting staff, making payments with personal credit cards, trading on “COD only” terms with other suppliers or ignores your communications.

Insolvent debtors must be written off, however there may be prospects of recovering your debt or part of it, in their bankruptcy or other insolvency proceedings. Professional advice is highly recommended when dealing with insolvent debtors so that you don’t get yourself tangled up with preference claims and clawback proceedings.

At the end of the day a business relationship is a two way street and if clients aren’t keeping up their end, they are a commercial dead end for your business and need to be amputated to mitigate further harm. It’s not easy to let go of a client, but it can truly bring about new beginnings for your business.

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