20th May 2025
A healthy balance sheet doesn’t necessarily mean a healthy business…especially if its hiding a history of bad debt.
Adrian Graham, from the Sheffield office of insolvency and business turnaround specialist Leonard Curtis, warns that too many businesses fall into the trap of ignoring outstanding payments.
“Quite simply, you have to know if and when you are going to be paid,” he said.
“It’s no good simply having a balance sheet which shows a profit if it’s being undermined by non-payment problems.
“And one of the biggest questions companies should be asking is how much you can rely on your debtors to finally pay their bill.
“Turning a blind eye to the issue simply means running the risk of creating a potential problem that could have been avoided.”
Adrian said that the solution to the problem was to maintain consistent checks on late payments and potential non payments.
“Keeping on top of bad debt or potential bad debt should always be a good habit to get into, a good discipline which demonstrates that you are aware of how healthy your finances really are,” he explained.
“Leaving unpaid invoices on the balance sheet when you know there is no way they are going to be paid may make it look like the figures are good but bad debtors are of no great use to a business which may be struggling with cash flow itself.
“Some directors might look at selling or assigning debts but this can often result in additional costs and increase the likelihood of the company losing proper control of their ledgers, immediately creating a bigger problem than they had originally.”
Another related issue, he added, was the issue of obsolete and slow moving stock again masking a cash crisis.
“Businesses bump up the value of their assets but if you’re including stock that isn’t selling as part of that evaluation, again you are simply hiding behind a false figure,” Adrian said.
“Is the value attributed to a company’s assets a true reflection of their market worth?
“Businesses often persuade themselves that they are okay but turning a blind eye to either of these problems is not the answer.
“The important thing to remember, though, is that these are the type of issues that can be resolved if handled in a timely manner.
“If you do recognise a problem, it is always best to seek advice and draw up a plan of action as swiftly and efficiently as possible.”