Our top ten tips on how businesses can prevent the accruing of bad debts.
Despite assurances of a improving economy, many businesses are still vulnerable in the chase for new business. Small businesses especially are vulnerable to slow paying or non paying large clients.
Having sought the experience of high level Credit Management professionals, we have compiled a top 10 list of the most basic and easiest ways to prevent a business accruing bad debtors.
Top 10 tips
1. Credit check all potential customers – It is the most basic prerequisite for any new customer requiring a credit facility. Amazingly, some Business owners still do not credit check, preferring to accept flimsy trade references and operating goodwill.
2. Bespoke Terms and conditions – Professionally drafted terms and conditions will protect you and your business. They will define your business model, protect your rights and limit your liabilities.
3. Payment Terms – From outset, clearly state what state what your terms are for payment. Adopting this simple practice will ensure your customer knows the position.
4. Invoice on time – Send invoices as soon as possible. Failure to do so will result in confusion and will significantly increase late payment. Ensure the invoice is correctly addressed and for the attention of the right person. You also need to clearly state when payment of the invoice is due.
5. Clear communication – Maintaining constant communication with your customers is key to the smooth running of your cash flow. Follow up invoices with a courtesy call to confirm receipt and use this call to prompt payment of any outstanding invoices.
6. Organisation of documentation – Maintain accurate records and have a efficient filing system for all documents. Simple credit control procedures will help you to stay on top of unpaid invoices.
7. Financial monitoring – As an extra precaution, you may wish to credit check your customers every six months to monitor their financial situation. As well as safe guarding for new customers, this is an effective measure for existing customers also.
8. Ask for payment – If a customer is not paying on time, do not be shy or hesitant about asking for payment. No business can survive without cash flow!
9. Ways to pay – The days of ‘cash only’ or the use of cheques are long gone. Utilise all modern methods to allow your customer the option in which to pay. Put your bank details on all invoices also.
10. Take action – If a customer does not pay and fails to adhere to subsequent requests for payment, do not be afraid to instruct a third party to recover your debt. Business is Business!
It is also worth pointing out that a simple clause in your terms and conditions can help avoid late/non payment. Advise that in the event of non payment, you reserve the right to instruct a Debt Collection Agency and/or Solicitors and they may be liable for recovery and/or legal costs.
Remember, prevention is always better than a cure. Avoiding your Business from attaining bad business debts can mean the difference between going bust or surviving.
Never be afraid to act when somebody owes your Business money.