In addition to Calceus Consulting, I’m also involved in a distribution company and a branded business.
Both of these businesses follow the classic branded sales model of cash out for samples and stock, some risk and then some reward.
Unfortunately as times remain tough, we’ve been experiencing more risk and less reward.
Generally we’ve extended terms to previously good payers and taken deposits from new customers. This model has worked well for eight seasons and has enabled us to grow. However, bad debt and delinquency are now becoming an issue.
Opening two-way dialogue with debtors goes some way to closing the gap, but we’ve needed to engage debt agencies to lessen our losses.
Here in lies the conundrum: is it better to pay and credit check every customer and possibly reduce bad debt, or take more of a risk and pay higher fees on a small number of defaulting clients via debt collection?
My view in the current climate is it is definitely worth credit checking every customer.
You can still choose to supply them if they are strategically important, but you’ll know who to start calling when the invoices are due and it is a lot less time-consuming and less costly than the debt collection route.
- Dan Gyves, Managing director of footwear consultancy Calceus Consulting