How to avoid bad debt - Part 3

Blog

By Bibby Financial Services

04 May 2018

No matter how small or big your business is, you must ensure you have good risk control in order to improve your company’s cashflow and increase your profit level. Bad debts will impact your cashflow, making it difficult for you to pay your debts and manage your business effectively.

No matter how small or big your business is, you must ensure you have good risk control in order to improve your company’s cashflow and increase your profit level. Bad debts will impact your cashflow, making it difficult for you to pay your debts and manage your business effectively.

Setting up an efficient and effective credit control system is an essential part of reducing the risk presented to your business by bad debt. You should achieve a balance between ensuring that your business receives payments in a timely manner and keeping your customers happy.

Responsibility – Appoint a single member of staff or small team to be responsible for credit control. This ensures that such matters will be handled promptly and efficiently. Create a credit policy that covers accepting new customers, the changing status of existing customers, exceptions to payment terms, changing credit limits, suspending accounts and using third-party enforcement.

Involve your sales team – Your sales team will have a valuable insight into customers’ behaviour and should be able to identify which are at risk; reviewing new customer information is key, but monitoring your existing customers is equally important.

Procedures – Put procedures in place for current and new customers. All new customers should be credit checked as a matter of course to minimise risk. It is also prudent to set low credit limits when first beginning a relationship with a customer. It’s important that you chase debts after they’ve become due. Monitor and establish how different customers pay their invoices.

Payment – Set out your payment terms in writing and make sure that all customers are aware of them. Send out invoices promptly, either on a certain day each month or within a defined timeframe after the provision of services or products. When sending out products, it is always best to send the invoice at the same time if you haven’t taken advance payment.

Reach an agreement – If your customer has a genuine reason for not making a payment, it may be possible to reach an agreement without the need for legal action that could result in the termination of the relationship.

Persistent debtors – If a customer continues to default on the money they owe, and you’re spending more time chasing them than their business is worth, you should consider concluding your business with them.

A stop list – Create a list of customers you do not want to give more credit to. This can be for various reasons, but it is an important document to create to safeguard your business. Update the list regularly and circulate it to appropriate employees. Do not supply any more goods to these customers until they are taken off the list and all invoices paid. Always inform late payers that they are ‘on
stop’.

Alternatively, why not contact one of our team where we can advise you of our Bad Debt Protection solutions? Bad Debt Protection will give you peace of mind, safeguarding you against non-payment. It’s ideal if you’ve had past experiences of bad debt, or a few customers represent a large percentage of your total sales. 


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