Businesses across East Anglia are writing off hundreds of thousands of pounds in bad debt because they don’t realise how businesses can make it cost-effective to get their money back.

With the credit crunch biting hard, the advice of Essex-based Shergroup, the UK’s leading High Court enforcement agency, is that your business could be at risk if you don’t take control of bad debts now.

Rob Skelton, Chief Finance Officer at Shergroup, says some businesses take the view that up to 1% of their annual turnover in bad debts is normal business risk.

“If a company has an annual turnover of £20m and you anticipated writing off 1% in bad debts that’s actually £200,000 written off.”

He says: “It is practice for businesses to write off debts if they believe the cost to chase them would be as much as the outstanding amount, but not enough businesses know that the price of chasing those debts does not have to be high or, in fact, could be at no cost at all.”

Shergroup’s ‘one-stop shop’ approach means if it collects the debt the fees are paid by the debtor and Shergroup will also trace a missing debtor through its Sherlock service.

He says: “Busy bosses of small to medium-sized enterprises traditionally reach for the phone to ring the company solicitor, but unless the debt becomes a contractual dispute, it can easily slip off the radar because the finance director has other, more pressing jobs to do.”

He says lawyers are well versed in chasing debts through the County Court, and referring debts of £600 or more up to the High Court. However, once they receive a judgment, they have to find someone to collect the debt, meaning the debtor could disappear in that time.

Claire Sandbrook, Chief Executive of Shergroup, said: “We often pick up business from commercial debtors who can’t pay their debts because other firms owe them money. Businesses need to treat each debtor as a possible defaulter when giving credit.”

Now Shergroup has devised a unique propensity model through its Sherpa online system to calculate the likelihood of whether a debt will be paid, based on years of experience and information collected on the debtor by Shergroup’s High Court enforcement officers.

“If the client pursues the debt through the court, with this information we can help ensure their Writs progress smoothly through the system with more science and less waffle,” says Mrs Sandbrook.

“Sherpa has been devised after Shergroup collated years of data and mixed it with demographics to give the most accurate predictive model ever created in civil court enforcement. We also follow the progress of collecting the debt through a case tracking system.”

However, before giving credit, her advice to businesses is simple: “Find out as much as you can about your debtor before you lend to them.”

She says: “Categorise debtors into individuals in the home, sole traders, partners, companies, and unincorporated associations. Verify information about limited and non-limited businesses. Cross-check addresses, credit reference and telephone records for individuals in the home.”

“Assess what assets a debtor might have. Do they have domestic or commercial premises? And what office equipment, stock, or plant and machinery are at a commercial address”

“It is not foolproof but it is better than throwing good money after bad.”