How SMEs should navigate the retail space to protect themselves in the lead up to Black Friday

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01 November, 2018

Back in August the shocking news that Mike Ashley's Sports Direct agreed to buy the House of Fraser department store chain for £90m hit headlines. The deal was announced just hours after the 169-year-old chain went into administration when talks with its creditors failed to reach an agreement.

Unfortunately, this is not a stand-alone case, and with more and more retail businesses struggling to stay afloat, SMEs have to be very careful when handling their cash flow and navigating the retail space - especially in the run up to Black Friday and the January sales.

To stay afloat, SMEs need to keep on top of their unpaid invoices, bringing in professional debt collectors if necessary, take advantage of new technologies on offer to make the sales process as easy as possible for their customers and, finally, find their niche and offer customers something that others don't.

The retail landscape is evolving at an incredible pace with huge changes in the way that consumers are now shopping. The move online continues to affect the high street at an increasing rate, with a number of big, traditional retailers falling by the wayside, having failed to innovate or diversify.

So, what can SMEs take from this? Well, there are three key points all CEOs should be mindful of:

  • The importance of cash flow
  • The importance of innovation
  • The importance of customer service

Top 5 tips to avoid the impact of debtor's insolvency include:

  1. Offer no credit! In an ideal world, goods or services would be exchanged at the same time as payment. However, we do know that is not always practically possible in the real world.
  2. If payment on delivery is not possible, it is key to have tight, well defined payment terms and credit control procedures in place. The terms of payment should be well publicised and agreed, ideally with other aspects of protection within your terms of business. The credit control function should be timely and make it clear that if payment is not made within a further short period of time, a referral will be made to your debt recovery solicitors without further reference. You can also add on interest and late payment compensation at this stage or make reference to those additional sums being added once the file is passed to the solicitors. These additional charges are recoverable on all commercial debts, so long as there are not alternative interest provisions in your terms and conditions.
  3. Pass to debt recovery solicitors as soon as the final deadline has passed-it is important to act promptly in referring cases to your solicitors to maximise the risk of payment from an impecunious customer. Our experience tells us that the louder and more frequently you shout, the more likely you are to get paid.
  4. Have solicitors who can and will move the debt recovery process along quickly and without delay-the more legitimate pressure that can be put on the debtor to pay, the better. Also, any claim should now include interest and, if applicable, late payment compensation. The quicker this process can be rolled out and progressed, the better the likelihood of getting paid!
  5. Retention of title-as a fall back, businesses who sell products/goods should consider including a 'retention of title' clause within their contracts/terms with customers, purporting to keep ownership with the selling business until the goods are paid for in full. Whilst not perfect and sometimes difficult to enforce, they can give a company some security and ability to claim back goods that haven't been paid for if, for example, if they do go into administration or liquidation.

As debt recovery specialists, we see the effect of the retail problems on our client base of suppliers, service providers and landlords to the retail sector. As such, the effect of the failure or struggles of the large high street brands has a direct effect on our clients' business. At Forbes, we work with those clients to try to avoid being left with bad debt and minimise the impact of customers in financial difficulties.

For more information contact Sadie Butler in our Forbes Collect department via email or phone on 0333 207 9388. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Forbes Collect department here

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