Overtrading – Once a myth, now a reality.
Is there one word that sums up the cost of living ‘crisis’ on the credit management of a business…
One word we use – Overtrading !
The sky rocketing cost of raw materials, the utilities to convert them and the fuel to distribute means companies need to spend more to simply purchase the same value of items as before.
To cope with this reduced money making, some businesses are gambling on what we call ‘overtrading’, where they commit to larger and larger contracts to bring increased revenues.
The downside to committing to larger projects is the necessity to buy more materials. Buying more leads to an monetary increase in orders, meaning much larger potential debts.
Yes, we can hear you say… ‘but this increased demand is fine because they’re going to earn more from the larger project to pay the bills’… but are they ? ?
All it takes is a snagging query on a site, or a manufacturing query at source and the customer’s payment chain comes to an inevitable halt, restricting cash-flow into their business. This lack of funds forces them to pass on their pain through none-payment to suppliers.
So how do you spot the tell tale signs of overtrading ? Look at your ledger for these…
1, Has a regular customer started to order increased volumes beyond their limit ?
2, Has a customer’s payments started to become delayed later and later ?
3, Has a normally ‘talkative’ customer become unexpectedly silent ?
If the answers to 1 and 2 are Yes, then grab your credit control script, give them a call and look for some answers.
Tell them you’ve noticed an increase in orders and ask them is this for a specific larger project, or are they simply doing more and more work.
Tell them you’ve noted recently that ‘everybody’s’ payment terms are getting stretched these days and you just wanted to make sure they had everything they needed to ensure there were no delays with the payment of your invoices.
Let’s not forget, until you’re paid, you’ve funding their business. It’s cost you money to fulfil these orders, it’s not all pure profit and until you get paid, it’s you carrying their debt, not them.
Finally, if you sadly don’t get a response from your attempts, then it’s time to grab the bull by the horns and take some action. You know where to find us to source your solution.