The Complete Guide to Business Risk Management by Kit Sadgrove

Author:Kit Sadgrove
Language: eng
Format: epub
Publisher: Ashgate Publishing Ltd.
Published: 2015-04-05T04:00:00+00:00

Bad Debt

Unpaid invoices cost UK business more than £60 billion per year, this being the amount of bad debt chased by members of the Credit Services Association (csa-uk.com).

And according to Intrum Justitia (intrum.com), around 40 per cent of all EU company invoices are paid late. This costs companies 0.7 per cent of turnover in Denmark and Sweden to 3.2 per cent in Spain.

As invoices get older, the chances of collecting the money declines. 60 per cent of three-month-old invoices are paid, in contrast to only 20 per cent of 12-month-old ones.

And if your business has a 10 per cent profit margin, a bad debt of £1,000 will require £10,000 worth of new business to cover the loss. If your margin is 5 per cent, you will need £20,000 of revenue to replace the £1,000 bad debt.

Late payment and bad debts threaten the survival of many otherwise successful companies. There are two elements to controlling debt: prevention and collection, which we turn to next.

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