Why writing off unpaid invoices is worse than you think for your business
Continuing his Business Advice cash flow series, Grid Law founder David Walker explains why writing off unpaid invoices could lead to potentially fatal problems down the line for your company.
When talking about their late payment problems, I often hear business owners saying that the quickest and easiest way to deal with an unpaid invoice is to write it off and focus their efforts on winning new business.
This is a very bad idea and in this article, Im going to explain why.
For just the one unpaid invoice here and there, you may not notice any long-term damage to your business, but this isnt a strategy you can rely on. If you do, and this becomes a regular practice, it’s a sure way to compound your problems and leave your business in real financial difficulties.
When you write off an unpaid invoice, you can’t write off a corresponding amount of outgoings. You have already invested time, effort and resources to complete this work and you still have all your staff, suppliers and other overheads to pay.
So, writing off this invoice doesnt take you back to zero, it puts your cash flow in a negative position because it has cost you money to complete the work.
To compensate for the unpaid invoices you have written off, you need to increase sales.
To increase your sales, you need to increase your marketing efforts and this will no doubt require an increase in your marketing budget. This will increase your overheads before the marketing efforts have generated any results.
__________________________________________________________________________________ A change of mindset is needed to solve the UK’s late payment problemFor the first article in the cash flow series, David offered an assessment of Britain’s late payment problem.
Even if you win more work, there’s likely to be a significant delay before the new work is completed and the client settles their invoice. This will put a further strain on your cash flow.
And that’s if the new client is paying on time!
However, we know from experience that they often don’t which is why we started this process.
David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry, advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.
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