This article in The Times on 24 April is a reminder of how smaller businesses need to keep ahead of their competitors in managing their relationships with their customers. The current economic turmoil is leaving businesses suffering financially due to higher than normal levels of "bad debt" as customers are not paying their invoices on time or in full.

It is not all doom and gloom though as there are things a business can do to avoid and/or alleviate potential problems:

• Think about the payment terms you operate on up front and be clear about them (and the consequences of not adhering to them) with your customers
• Consider using retention of title clauses in your contracts where appropriate (so that goods can be recovered if a purchaser does not pay for them)
• Keep an eye on your customers through credit checks and market analysis to ensure, wherever possible, you are not extending too much credit to a particular business
• Engage in constructive dialogue with your customers who are in default
• Consider whether credit insurance or perhaps invoice discounting will assist (but beware of its potential impact of the latter on your profit margin)

If the worst happens think pragmatically about the risk-v-reward of suing a customer for an unpaid debt. There are many competing considerations:

• Will suing damage a customer relationship to your longer term detriment?
• Is the defaulting business good for the money (as incurring legal costs is not a great idea if ultimately there are no assets to enforce a judgment against)?
• What message will your action send to other customers and might this be helpful in the longer term?
• Is there an alternative way to secure payment - perhaps by withdrawing support services to the customer until they pay (of course, you need to be sure that this will not put you in breach of contract)?

Ultimately if your business is suffering financially then be up front with your own suppliers (and bankers) and engage in early dialogue with them. If needs be, seek legal advice on your position - by tackling problems head on at an early stage, often a workable solution can be found.