How to avoid bankruptcy

Always pay attention to invoicing. And always pay attention to getting the money in. Cash flow is king in business. More businesses fail through poor cash flow than anything else. Run with the flow.
Don't be afraid to ask for your money, and keep track of your invoices.
Organise a good collection system right at the start of your business. Make friends with a debt collection agency and a factoring company.
Payment terms should be made crystal clear on the invoice and at the contract negotiation stage.
Payment may be in stages, part up-front, or billed in arrears and some parts of it may be withheld if the customer is not satisfied with what you have done, so be aware of this. Payment in arrears may take up to 90days - the average is 45 -60 days unless you live in a jurisdiction keeping a 30 day maximum. So you have to plan for this. Factoring is the answer here but you will lose 5-15% of your contract value and sometimes they are fussy about what invoices they take - and the value of the invoice. So shop around.
Calculate your costs as and when they fall due. Then plan for this. Then have a rainy day fund, which gathers interest.
Can you work to cash up front? It helps your cash flow. Bill for initial expenses at least. - on a very big contract, you are going to have to. Get everything in writing.

DAMAGE LIMITATION

Don't wake up one morning to find that you are owed money and your debtor has just gone bankrupt. Then you have to act fast to save your own business. Obviously if you have no other customers then you have a major problem yourself. There really is no excuse to rely on one customer, alone. salvage what you can.

PROBLEMS SOLVED

Do not leave an invoice over 90 days. Take steps and look at your legal options. Several steps can be taken. Write formally with a copy of the invoice, stating the steps you will be taking to recover this debt. If their is no response call them. Friday afternoons is a very fruitful time for this. The cheque is in the post is not a good excuse. Neither is waiting for the cheque, neither is receiving the cheque without a signature, or a wrong signature, or incomplete signature. You would be amazed at the tactics some businesses use. Very large businesses have whole departments dedicated to working out methods for delaying payment they also have large law departments. Unless you are really confident of getting a very good agreement on payment, and have this in writing, you may need to think long and hard about contracts with very large businesses. there is really no kudos attached to them if you cant get paid.

Get really friendly with a good debt collection agency, although it may cost you good money to reclaim your debt. They do deliver, as do factoring and invoice discounting businesses. Your problems will not be solved if the factors will only look at large invoice totals - if your average invoice is small then you may need to write this off. Do not write off a debt until there is no hope. We got paid on one 18 months after the initial invoice.

Have you looked at bankruptcy laws of your country? You may be able to issue a statutory order of bankruptcy (UK) against the debtor if the invoice is over a certain amount. This then gives them a set period of time to give a reason for not paying you and all their other creditors and if they aren't paying you, then they may not be paying anyone else either. This is an idea for those very big companies, and we have seen it used for a one man business against a very big national business. He got paid within the week. Be mean to get your money.

The biggest lie ever to be accepted by a court is the one which states that your work wasn't good enough, so you aren't going to get paid. Unless you have taken steps to protect yourself you haven't a hope of getting your money. You should get your work signed off as satisfactory, by a responsible person in your customers business. If there are any complaints, ensure that they are dealt with instantly. Don’t delay on this, it isn't good and doesn't look good to a court. If you can prove that you have taken all steps to correct problems and there really isn't any reason why you haven't been paid, then the court should agree with you.

Have you thought to credit check your customer? Very illuminating sometimes. If there is a long history of poor credit, then lose the customer before you run into problems. You should ask for payment immediately the contract is finished and do not take any more contracts from them.
Have you any payment problems in your business? How do you solve them? Tell us!

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