SME CORNER: Cost saving – debt recovery v redundancy

In these uncertain times, how do businesses with a profitable core operation ensure that they are able to grow when new opportunities arise? Decision makers in business should focus on maintaining a strong cash-flow position .

In a recession cost cutting exercises are the norm with the choices of redundancy and a tighter debt control system. However, redundancy is often primary when analysing how to improve cashflow. This is particularly true where a business’ goal is survival. Whilst redundancies will help reduce staff costs long term, in the short term it may not materially improve cashflow because redundancy payments and notice periods have to be funded. Entering the redundancy process will often result in key staff being taken “out of the business” while they manage the redundancy process and this limits the time the business is able to dedicate to customer acquisition and service. This will inevitably have an effect on turnover.

Any business will focus on customer and contract acquisition and then delivery to those customers. Whilst banks were lending in support of growth, book debt recovery was down the list of priorities as it supported the borrowing. However, as lending has been severely curtailed, focusing on recovering aged debts is imperative to position for growth. Without this focus, cashflow will not be as strong as possible and “scaling up” may not be a real economic option. The process of making redundancies for the purpose of improving cashflow, will restrict the opportunity for growth because there are fewer people in the business to act and build on opportunities.

Cost effective debt recovery may offer a real opportunity to improve cashflow in the short term, without incurring the costs associated with the redundancy process and the detrimental effect that redundancies have on growth potential. A review of your aged debtor list will show a considerable amount of ‘survival’ or ‘growth’ money tied up in debt much of which is long-term. The contradiction between aggressive debt recovery and customer retention is accepted but an analysis of the debtor book will ensure that staff are not deployed on work for which payment will never be received. Credit check monitoring is an essential part of the customer acquisition and retention process. Do not be a Bank for your clients with cheap funding because no interest will be paid and the risk of damage to your business increases with the debt.

We have noticed an increase in the age of debt upon which we are asked to advise notwithstanding the fact that banks are placing greater emphasis on a businesses ability to review and analyse the profile of its debtor book. We offer a low cost fixed fee debt recovery service for those businesses who wish to apply pressure to debtors releasing some of the considerable sums that are often tied up.

The cost of a letter before Court action is £2.00 plus VAT. If you have an aged debtor list of 200 debts, the cost of sending an initial letter to each of these debtors will be £400 plus VAT. This cost should be compared to the cost of time / redundancy pay and lost opportunity that will be involved in staff redundancies.

We also add to the debt amount compensation and interest to which you are entitled in order to maximise your claim. Often a Solicitors letter adds the necessary pressure to encourage payment by your debtor. Many of the debts will be paid following the initial letters thereby providing immediate cashflow.

Where payment does not follow the letter before action, a business must decide whether to pursue the unpaid debts through the Courts. This assessment will take in to consideration whether a business can identify if a debtor is a “won’t pay” or a “can’t pay” debtor and we investigate whether the debtor has sufficient assets to make court action cost effective. Clients of our debt recovery service benefit from lower Court fees and fixed cost legal fees when issuing proceedings against those “won’t pay” debtors.

Our debt recovery service ensures that aged debtors can be pursued quickly and cost effectively. This service offers to client’s an alternative solution for improving cashflow so that they can strategically place themselves to achieve the businesses goal. Whilst the business may need to still undertake other cost cutting exercises, depending on the level of aged debt, redundancies may not need to be at the top of the list..

For more information regarding our debt recovery service, please contact Maria Koureas-Jones; maria.koureas-jones@breezeandwyles.co.uk.

 

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