Managing bad debt in plant hire

Prevention

• Credit-check every trade account and set a limit. See deposits and payment terms.
• Personal guarantees from directors of new or small companies.
• Card payments upfront from new and cash customers.
• Invoice the day the machine comes back.
• Stop further hires when an account goes overdue or over limit.
• Don't let one customer owe a large share of your debtors.

Warning signs

• Payments getting slower each month.
• Part payments or round-number payments on account.
• "The cheque's in the post" and changing excuses.
• New accounts contacts or directors.
• County court judgments or new charges at Companies House.
• Other suppliers mentioning they're owed money.

Recovering a debt

1. 01

   Stop supply

   No more hires until the account is up to date.

2. 02

   Formal demand

   Letter before action, stating the amount, interest and costs.

3. 03

   Claim interest and compensation

   Statutory interest and fixed compensation on business debts.

4. 04

   Small claims

   Debts up to £10,000 in England and Wales; online through Money Claim Online.

5. 05

   Larger debts

   Solicitor or debt recovery agency; consider costs against the amount.

Insolvent customers

If a customer goes into administration or liquidation, your hired machines still belong to you. Contact the insolvency practitioner immediately, provide proof of ownership (serial numbers, hire agreement) and arrange collection. For the unpaid hire, submit a claim as an unsecured creditor; recoveries are often small.

VAT bad debt relief

If you've paid VAT to HMRC on an invoice that's never paid, you can usually reclaim it once the debt is at least six months overdue (from the later of the supply date and the payment due date) and you've written it off in your VAT records. Claim it on your VAT return and keep the records. Ask your accountant to confirm the conditions apply.

Credit insurance

Trade credit insurance covers part of a debt if a customer becomes insolvent or doesn't pay. It suits firms with large exposure to a few customers, such as housebuilders on long terms. Compare premiums with your actual bad debt history.