How to Avoid Bad Debts

Late payments and bad debts can cause major issues to your cashflow and result in poor client relations and may seriously affect your own business performance. Here are some tips to help prevent late payments and avoid the unnecessary use of a debt collection agency.

The avoidance of bad debts is mainly down to a good and regimented credit control system and working closely with your clients. Here are some tips to help avoid bad debts:

  1. Initial Contract with Client

Ensure you provide your clients with clear defined terms and conditions when entering into a contract. Transparency is key to a good client relationship

  1. Know your clients

Upon receiving a request or enquiry about your services and before entering into a contract undertake a credit report on your potential client. This will give you a good insight into their credibility and whether they are able to meet and pay for the goods and services you are providing. Click here to see a sample report.

  1. Monitor your clients

If you have regular and long term clients we recommend you set up a monitoring service with your business information provider. This service will monitor all your clients/customers and provide early warning signs of possible problems. These will include:

  1. County court judgments
  2. Changes in Management
  3. Changes in known payment times
  4. Late filing of statutory document including financials, etc
  5. Keep Records

Once an order has been placed make sure you have all the correct information to process such as order numbers, contact details and names of people involved with the order.

  1. Monitor order progress

Ensure the goods or services have been delivered on time and in good condition. Request confirmation of receipt and acceptance.

  1. Invoice Promptly

Ensure your invoice is issued on time and clearly states what you have invoice for providing all necessary details such as order numbers. Clearly state your payment terms eg. 30 days net of invoice date.

  1. Pre due date Reminder

Send an email 7 days before due date to remind your client when payment is due and expected.

  1. Once Overdue

If payment has not been received by the due date send a gentle email reminder after 3 days just advising payment is overdue and to inform you of any reasons why it has not been paid.

  1. Follow Up Telephone Call

If payment has not been received after 7 days of due date then telephone the client and keep records of the conversation.

  1. Still No Payment

If payment has still not been received and there is no valid reason for non payment then we recommend you send a final email. See our pre collection email

  1. Out source to debt collection agency

If all the above has failed to result in payment then we recommend you outsource the case immediately to a debt collection agency who operate on a No Win No Fee basis.

Following the above processes will maximise your chances of avoiding bad debts and greatly improving your cashflow.

For further details how Creditreform can assist you please contact us.