CPA Blog credit management
Of course, auditors know a great deal more about the financial circumstances of their client than most other suppliers. This does not stop them offering credit purely on the basis of trust, however, and sometimes it all goes horribly wrong.
This was one such case.
The debtor company had negative working capital of £34,000. Shareholders funds were also negative to the tune of £32,000 and the company had twice been the subject of strike-off action by Companies House. The main director had been involved with a spectacular dissolution some years ago.
Not surprisingly, our Statuslink credit information service gave no credit limit.
The Member submitted the debt to PAID for purchase. Quite clearly, it did not qualify for purchase at our risk but we wanted to help and bought the debt with the credit risk remaining with the Member but with CPA (PAID) absorbing all collection and legal costs.
The ploy paid off.
The debtor company paid in full following PAID‘s approach. We were delighted to reimburse our Member for the payment minus our modest debt purchase fee.
Both these cases illustrate that whilst much of commercial activity is based upon trust, it needs to be accompanied with a degree of commercial judgement when dealing with debtors with clear financial weaknesses.
Here, our Member had advanced open credit of £17,402 to a company with a credit limit of £3,700 and where, as recorded in our report, cash flow was clearly under extreme pressure. Following losses incurred last April, a director had resigned – always a warning sign.
Once again, PAID purchased the debt on a recourse basis, made contact with the debtor company, obtained payment of £10,700 and agreed a repayment schedule which should result in full repayment.
Another positive result attained for the Member, the debtor and to our team at CPA PAID.
These cases underline the value of using a skilled outsider to handle those especially difficult cases that inevitably occur in all businesses from time to time.
David Hawkins
7th June 2018.
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