Insider Media Limited

Getting paid is ultimately always going to be the test of whether you make it through the harsh recession. But who can you rely on, and how do you spot the customer set to go bump, leaving a bad debt and jeopardising your own existence?

Chris Howard, of Birmingham web and print marketing agency Think Inc, has had plenty of opportunities to consider the issue: four businesses failed to come up with the money in quick succession, forcing him to take out a loan to keep his cash flow ticking over.

“We’re doing really well again, but it was scary at the time,” he says.

The first to hit the buffers was a high-end clothing retailer with shops across the country. Think had built an e-commerce web site to allow it to sell on line. Normally it asks for 50 per cent of the cost up front but on this occasion did didn’t. It proved a mistake as the client folded owing Think £8,000. Howard only found out through a story in a newspaper.

The next incident was a party goods supplier and retailer, selling balloons and the like and putting on events. The deal also involved an e-commerce web site but this company crashed too, and, despite putting a solicitor on the case, Think was adrift £6,000.

“This time I did have my suspicions,” says Howard. “We were getting a bit worried. They started pulling holes in the systems where there weren’t any. Moaning about something that is perfect was a sign, not that they were unhappy with it but that they couldn’t pay. That was a lesson.”

Next was a company selling properties abroad and trying to pull in people by offering ‘free’ holidays. Surely all those sort of operations are dodgy?

Apparently not, at least at first. “They’d been referred by a friend who had done literature for them,” he says. “He had been paid. They had nice offices, good kit, a team of about five people and appeared to be fine.”

However – you guessed it – the business did a runner, producing a £3,000 bad debt.

And finally there was a blinds outfit split into three divisions, which coughed up for the first website but not the second.

Howard says: “I went to the company’s offices a few times. I knew people who had got work off it and they passed me referrals, one of whom has become an important client. But part of the group got sold off and it all ended up a bit messy. That was another £2,000.

“After that we changed our whole financial practices. Everything bar none is now 50 per cent up front.

“We’re much quicker to come down on people and we’ve become better at vetting newcomers. If there are difficulties we’ll take people’s email off, and few companies can afford that to happen. We were a bit too laid back, which was probably my fault. Now we’re a lot harder.”

But even the most experienced can be fooled. Charles Hanmer, managing director of Kingswinford business Charles Design and Marketing, had two companies that cost him money in recent months. In neither case did he see it coming.

The first was in the furniture sector and owed him £6,500. It went into liquidation. Hanmer, a veteran businessman who has been through recessions before, says it happened so fast he was caught out.

“They had been paying me. OK, maybe a bit slowly at times. But if you never traded with people who occasionally paid you slowly you would hardly have any work.”

The second case involved a scrap metal merchant, which left him with a debt of £4,000. “I never thought that company would go down,” he says, proving even the old heads can be surprised. The individual concerned had been “very apologetic”.

Conversely Hanmer has another operation owing him a significant sum of money, which has been paying it off at £350 a month.

“It may take months but I can live with that,” says Hanmer. “Better to have a slice of the cake than no cake at all. Sometimes you have to help clients through these sorts of periods, but we’re taking a chance.”

If you know the person well, and there is a track record, then, he says out, it is easier to make a judgement. Hanmer says his operation is solid: “I can stand it. I run my company properly. There is still good business about and you get these tidying outs from time to time.”

But he fears it is not all over yet. Until the banks free up the mortgage market, and with the number of house repossessions rising, he fears there is further trouble ahead, hitting people who in normal times would have been all right.

He adds: “The sort of ones you have been trading with for perhaps three, four or five years quite happily suddenly find money tight. They ask the bank to extend their lending and are refused. It is then that they go bust.”

But there can also be more complicated dilemmas.

Hanmer cites the typical case of a small business, perhaps only with six or 12 clients, that finds one of its main customers has built up a debt. The company concerned comes on with another order but is told there is for the moment a stop on further dealings.

But, says the client, this is a big contract, maybe £20,000, and it’s yours – just so long as you can extend credit from 60 days to 90 days. It maintains it is only facing a temporary problem and is awaiting a sizeable cheque.

What do you do? It can be a critical moment.

“If it still go bump then it will likely take one or two down with it,” says Hanmer. “There is a cannonball effect.”

A Stoke-on-Trent insolvency specialist recalls how he once repelled an attempt by an outraged creditor to take back what he saw as his property.

It involved a fuel oil supplier that had arrived complete with tanker to cart the stuff away, claiming retention of title.

Bob Young, a corporate recovery expert and partner at Begbies Traynor, says “There was a sort of tug of war at the gates.

"They were trying to force them open to get the tanker in and me and my team were trying to push them shut. It ended with police being called.”

The company had delivered most of the fuel, but because there had been other suppliers involved Young took the view the company could not establish what in the depot was theirs and what was not. Therefore the matter came under his control and remit.