With 40 years of debt collecting behind me, it is a constant disappointment how many customers coming to me for help do not actually know who their debtor is. If you give credit, then you really need to know.

It dois not matter at all what the company calls itself. Who cares if it is “the Best in London.”  It does not matter a hoot when things go well. BUT when things go wrong there is a world of difference whether the debtor is a limited company or an individual.

When a limited company fails to pay, suing is probably pointless. Often all that is left for a bailiff is the Company seal. On the other hand, if it is John Smith trading, he personally is liable up to the hilt. His house is up for grabs, that is, if the creditor, you, are clever enough to have recorded a home address. That raises two points. If you have doubts about granting credit for the first time to a limited company a brave person will ask for directors guarantee. If you have doubts about supplying a sole trader on credit, then you need his guarantee.  The guarantee is worthless, but it is an excuse to get his address.

Statistics are a bore, but they help put the problem in perspective. The Insolvency Services report that for the year to June 2017 company liquidations fell to 0.56% in the second quarter – the lowest rate for over 30 years – and personal insolvencies are falling, currently running at 2.7% of the adult population. Those figures of course take no account of the myriad of companies and sole traders, who just slink away and hope no creditor is sufficiently incensed to follow his loss up by pursuing the debtor in insolvency. Myself i always counsel against sending good money after bad. True the assets will be properly marshalled, realized and the proceeds distributed rateably, but I ask creditors, “what makes you think you are the only people he owes money to?” In 2016 The Official Receiver paid an average dividend of 0.25p to creditors!!!

References are a further point. I once defended two rogues in Harrow Crown Court for an offence of fraudulent trading. They got away with close on £950,000. And that was after some suppliers had actually been careful about obtaining references.  Just as carefully these rogues had anticipated that. To be able to furnish good references, they used to pay two of their suppliers and their landlord scrupulously within the terms. That kept them sweet to be referees. They also  banked with two banks.  What happened when the company folded? It left a disastrous train of creditors for really substantial sums to face bad debts and in three sad cases bankruptcy after these two re-ordered before the first order was due for payment, ran up exorbitant hotel bills for their Xmas entertaining – overnight accommodation  with champagne in their room for forty, – just ignored demands and then ignored county court judgments. etc etc.   When I wrote they “got away with ………” in the end I could not keep either of them out of jail. Actually I thought justice was done.

There are your third and fourth points. If you take credit references note the name of the bank and check that cheques in payment are drawn on that one. And see that the accounts side don’t let eager sales people be fooled into extending the credit limit before the buyer has established a decent trading record.

Lastly, credit management is important. As I said at the start Any fool can sell if he doesn’t expect to get paid. Someone needs to be responsible for chasing debts. Women do it best. Their time is precious. So organise it for them. There has got to be a list of outstanding debts. Only a non-thinker arranges it in alphabetical order. Who cares if the debts are owed by customers whose name starts with an “A” or a ” Z”?  Perhpas rank the overdue debts by size. The person chasing should speak to the person who prepares the cheques. Get a date for payment. Make a note. Follow it up with the same person if the date slips.

L M Wise FCA
The Author is a Barrister and Chartered Accountant and heads Wise & Co