Can I protect against bad customers?
My company supplies organic food and equipment to restaurants. Recently, one of my customers got behind with payments, then went in and out of administration, wiping their debts. I’ve ‘lost’ £6,000 and don’t think the restaurant was shut for one night. What can I do about this and stop it happening again?
A. James Bradney writes:
To comply with SIP16, the joint administrator appointed to your customer’s business should have provided you with full details of the transaction that has occurred. Also, he may be required to convene a meeting of creditors at which you would be able to ask questions and potentially serve on a creditors committee. The administrator also has an obligation to report to the government’s Insolvency Service on the conduct of the company’s directors in the period leading up to administration. This would highlight any potential misconduct and, if any has taken place, it may offer you some redress. You should certainly advise the administrator of your concerns so that he can consider these when he prepares his report.
To minimise your chances of incurring further bad debts of this nature, I suggest you undertake thorough credit checks on your customers and review your terms of business, ensuring credit references are supplied before opening new accounts.
Also, consider taking out credit insurance or obtaining personal guarantees from customers if the credit risk appears substantial. Finally, effective reservation of title clauses may provide you with the opportunity to exert leverage to obtain payment, either prior to or following your customer’s insolvency in so far as the debt relates to the dining equipment that you supply.