This question has been posed to me many a time from SME’s and key decision makers.
This should be guided by your Accountant, but realistically it really depends on your business circumstances.
Many examples spring to mind regarding an ‘ideal time’ for a Bad Debt Write Off, here are just three of my experiences while working in this field:
The Pub Owner
Debtor:
Pub Owner based in East Anglia, who ran a string of 3/4 pubs
Debt Balance outstanding
£60,000
Around mid 2008, a file of £60k landed on my desk, where £90k had been lent to this one PG.
He was falling behind on his loan repayments.
He stated he had taken out the loan to refurbish one of his pubs, even providing details at underwriting time.
A Personal Guarantee (PG) was obtained on him, and at that point he was unencumbered on his property.
As well as a first charge procured on there by the Bank, other personal assets owned by the Publican included a number of motorcycles and a small sailing boat.
In total his personal unencumbered assets took him to at least £45,000.
Skip ahead a couple of years (albeit when the Recession was beginning to bite a lot of companies around 2008), and the portfolio of Pubs had begun to flail, so much so that he decided into entering into a CVA (Corporate Voluntary Arrangement).
The HMRC were at his heels for unpaid corporation tax amongst others.
The point at which I took over the file, all of his personal assets had gone, which meant that we could not enforce the Personal Guarantee on him.
His property had been re-mortgaged up to the hilt, leaving him with virtually nothing.
The CVA failed, and the company entered into LPA Receivership, the leases encumbered via charges and debentures to a well known high street bank.
This left our PG on the brink, and he consequently filed for his bankruptcy.
What a sorry state of affairs – all prior communication with us had become ignored.
…and we had to rely on whatever paltry pence in the pound we would receive, as a result of all secured creditors getting first divs.
In this event, this file was passed for Write Off within six months of it being passed to me, as there was no hope in getting funds back on this.
The Electronics Retailer
Debtor:
An Electronics Retailer who had obtained a Stand at a Gift Fair
Debt balance outstanding:
£11,000
“I promise you we will pay?”
“Just give us a couple of weeks, we are awaiting for funding to come in from one of our Customers?”
… Social media footprints alighted to show that they had maintained regular contact and updated their feeds alluding to potential trading ongoing.
…. Communication ignored.
The company did not have any credit footprint established. It turns out that these were professional debtors who did this time and time again.
The balance was large in comparison to some of its other debts, so here you are faced with a moral dilemma in not writing off this debt value.
Do you just issue action and hope for the best?
… you could waste valuable costs fighting a loosing battle.
In this situation, rather than spend around £1,000 issuing Court Action in the first place, a Field Agent was instructed to visit their last known trading address (as publicised on Facebook)
Lo and behold the Agent confirmed that the place had shut down and there were no notable assets that could be seized from here.
A subsequent visit to their Registered Office address turned out to be a Mailbox holding address who would not provide any further details.
So, this led to a £11,000 write off.
…. or until such time that the company would have deemed as being dissolved.
Who is to say that they will not start trading again?
In my experience, the debtors (ex-Customers) knew what they were doing and were just buying time in not clearing down their debts in a timely manner.
The Coach Firm
Debtor:
A coach firm, whereby one of the Directors became involved in a high profile crime and subsequently had his assets seized
Debt Balance Outstanding:
£38,000
The company had two or three coaches on a leasing agreement.
This subsequently stopped as a result of the main Director being associated with a high profile crime.
… Which meant that the firm that I was working for at the time were not getting their monthly instalments paid on the operating lease.
After seizing the coaches back, the shortfall left over was £38k
However, with the Director now on bail and his assets seized, this meant that it would be some time before he went to trial and any hope of recovering the surplus balance.
Does that mean that you would have to wait before passing an account off for a Write off?
In this situation, the Courts and the Police launched an investigation into the dealings of the company.
I wasn’t around to see the conclusion, but in other similar cases, which had dragged on for several years, it materialised that you would not get anything back.
But for the sake of the authorities it is important to not write off any bad debt.