I recently met with Ray, a builder based in Newtown in Sydney's inner west. Ray had been trading for over 20 years without any bad debts a really good effort! Newtown like any other suburb in Sydney's Inner West has a number of businesses in the construction industry that can fall victim at any time to a bad debt.
After 20 years Ray suddenly had been hit with two big debts at the same time. The first debtor owed him $100,000 and started to question invoices, not only recent ones, but also invoices from previous years. The second, after Ray had supplied 3 months of labour, went into liquidation owing him $80,000. This is a major hit for any small business to try and recover from and highlights the importance of protecting your cash flow with a strong set of Terms of Trade, Contracts and sound Credit Management policy to monitor your clients on 30 day payment terms. Just like insurance on your car you never know when you are going to have to rely on it.