In a recovering economy, firms are looking to protect their growth strategies

With the new year approaching, many businesses are putting in place expansion plans for 2011.

As the economy continues to improve, many firms are looking to capitalise on the new opportunities this will create. However, to ensure a business has the cash flow required to implement a growth strategy, it is essential that they tie up any outstanding customer debts.

Late and unpaid invoices can be more than a blemish on a business’ accounts as persistent bad debt can stunt growth and even weaken a firm’s trading position.

To ensure overdue debtors don’t have an adverse effect on your company, Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, has put together the following tips on how to chase and follow up outstanding invoices:

1. Issue a chase letter. Send a note to the debtor as soon as the invoice becomes overdue. It is possible the customer has overlooked the bill and forgotten to pay.

2. Restructure the debt. If a client admits they are having trouble paying an invoice on time, it may be worth offering to restructure the balance due on an agreed monthly schedule, including interest. This protects long-standing relationships with customers who may be suffering a temporary cash flow blip.

3. Send a seven day letter. Ask your solicitor to draft a ‘seven day letter’, threatening legal action if the invoice is not paid within a week.

4. Take legal action. If you can not agree on a repayment of the invoice you can initiate legal action. This is time consuming and sometimes costly, but if you are chasing a large debt (£5,000 plus) it is sensible to take professional legal advice and potentially initiate County Court proceedings. For overdue amounts less than £5,000 you can go through the small claims court.

5. Recover your goods. If you have supplied the debtor with imperishable products it may be possible to reclaim these, providing they have not been sold on. However, you must make sure this clause is stipulated beforehand. If in doubt, seek legal advice.

6. Protect your sales ledger. To safeguard your firm’s cash flow, a credit insurance product, such as Lloyds TSB Commercial Finance’s debtor insurance covers up to 90 per cent of bad debt suffered.