What To Do If A Client Goes Bust
The news this year has been dominated by a range of UK businesses announcing profit warnings, and even going into administration, including construction firm Carillion, restaurant chains Jamies and Prezzo, and retailers New Look and House of Fraser, amongst others.
Much has, rightly, been made of the employees whose immediate futures are now in the balance, unsure of what will happen next.
However, there's also a significant group of people whose plight hasn't made the headlines - the contractors and suppliers further down the chain whose businesses may well also go bust with a raft of unpaid invoices. The impact and ripple effect is likely to be monumental.
So what can they do? What can you do if, heaven forbid, you're ever in the same position?
This article by My Credit Controllers gives a really useful overview of the administration process, and how it will affect your business. It's well worth a read.
And how can you avoid being in that situation in the first place?
1. Never rely on one large client. A lot of contractors will end up running their own business because their 'employer' doesn't want to have the, perceived, hassle of keeping them 'on the books'. Apart from the fact that HMRC has clamped down on this practice, and you now need to prove that you work for other people too, it's sensible business practice to have a range of different revenue streams. NEVER work for one client. And if a client asks you for exclusivity either working within their industry, or in total (as they sometimes do)? Think very carefully before saying yes (I'd recommend saying no...); and always take advice from your accountant and/or lawyer first.
2. Always chase overdue invoices quickly... I get it. You're busy. You're rushing around doing 1000 things at once, and so when a client doesn't pay on time you might let it slide for a few days. Or a week. Or maybe two. And then you'll chase, and they'll pay. Then it happens again. And again. And before you know it, they might take 30 days to pay a 7 day invoice, or perhaps even longer. The problem here is that you're now funding your client, when they are supposed to be paying you. Always chase overdue invoices; train your clients into good habits. And if you're too busy? Pay your accountant or bookkeeper to chase on your behalf.
3. ...and never carry on working for a client who already owes you money.Of course, what happens once they owe you money, if it's a regular client, is that you go into next month having not been paid and carry on working for them. Under the guise of kindness, and good customer service, you help them to build up a debt with you. Never carry on working for a client who owes you money. It's a slippery slope that can end in upset.
If you're looking for ways to keep a tight hold on your cash, bring in more revenue streams, and avoid getting into a similar situation, my book '88 Ways To Make More Money In Your Business Starting Today' is packed full of tips and strategies.