Opinion

Are you trading with zombies? Are you one yourself?

23rd January 2018

Companies that are significantly indebted yet have managed to survive due to historically low interest rates and forbearance by banks and other creditors have been dubbed “zombies”.

Zombie companies are those that have managed to service their debt and continue trading but have been unable to grow, invest, restructure or become more productive and profitable because of their debt. They are not ‘dead’ as such but neither are they alive with the opportunity to grow and thrive.

Since the most recent recession, zombies have been able to continue because of low cost debt with the number of insolvencies remaining comparatively low. However, the last base rate rise and any subsequent rate increases could expose zombies and force them into insolvency whether voluntarily or by creditors due to increased debt costs.

The danger for potential trading partners is that you won’t know if a customer is a zombie until it is too late. So help to protect your business from zombies by considering these useful tips:

Can you reduce your terms from 30 days to 14 or even 7 days? For new customers this may be an easy step but for existing customers make sure you notify them of any changes.

Remove 30/60/90+ days from statement of accounts. Showing 90+ days can been seen by customers as acceptable payment behaviour, so consider showing only current and overdue amounts.

Incentivise early payment. Perhaps you can offer a discount for early or upfront payment? However always consider the cost of any potential discounts to your business.

Charge late payment interest and compensation. Incurring additional amounts can be a good incentive for customers paying on time. You may be entitled to claim compensation of up to £100 per invoice plus interest on the amount outstanding for late payment. Check that your terms allow you to apply Late Payment of Commercial Debts (Interest) Act 1998 provisions (they do not need to specifically state this so if you are unsure, we are happy to check this for you).

Resolve any queries or questions about your invoices early. Don’t allow debtors to use delaying tactics to buy time, for example by raising issues with the goods or services supplied that may not be genuine. Clear up any questions at the earliest opportunity and don’t sit on unresolved disputes. Seek proper advice immediately if you cannot reach an agreement or satisfy a customer’s concerns.

Make sure you have a defined credit control/follow-up process. Any customer can overlook a payment so it’s important to have a procedure in place which reminds customers of when payment will become due and then chases payment when it is overdue. Consider imposing strict time limits for escalating the debt for recovery by a 3rd party or to use court claim procedures. Avoid being “busy fools” by sending repeated payment demands or making the same telephone call which allows the debt to become older and more difficult to collect. If you don’t have the time or resources to deal with credit control and debt chasing then consider outsourcing the process.

Understand debt collection options and legal recovery procedures. In order to be able to make a decision on whether to chase a debt make sure you know the costs involved and which options are available to you.

Check out your customer. Before offering any credit terms find out as much as you can about the customer using credit reports and checks.

Review your aged debts. Make sure you are not sitting on a debt problem and making it worse. Take a close look at all past due invoices and take debt recovery action.

Are you a Zombie?

If your business is experiencing financial pressures, the sooner you obtain advice the better as there may be a number of options available to help get your business back in to the land of the living.

If you would like further details on anything contained in this e-newsletter or to receive general business advice please contact:

Rob Burke, Head of Debt Recovery

David Ellis, Head of Insolvency and Business Recovery

 

 

 

 

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