How does bad debt affect your business?
For any business, issues like waiting long periods for receivables and dealing with late paying customers are an unfortunate part of business life. Late or unpaid invoices can really affect the efficiency of your business if they aren’t dealt with in a timely manner. Late payments not only affect your working capital, they can also have a negative impact on your turnover, credit rating and even the future viability of your business.
Have a solid payment policy and system in place that deals with these issues early and stick to it.
Avoiding bad debt
There are a number of measures you can take to ensure prompt payment, collection of late payments and to avoid bad debts.
- Clearly outline payment terms and conditions on all quotes.
- Make sure the payment date is printed clearly on your invoice to ensure that it’s part of the customer's billing cycle.
- To encourage prompt payment, send your invoices as soon as your product or service is supplied.
- Consider a COD arrangement in the early stages of a new client relationship or with those clients you wish to continue doing business with but have proved to be unreliable payers.
- Establish a connection and good working relationship with an individual in your customer’s Accounts Payable department and send all your invoices to them directly.
Dealing with bad debt
- If an invoice remains unpaid following the due date send a Statement as a reminder.
- Get on the phone or even pay them a visit if need be.
- Last resort, have a debt collection strategy and agency lined up.
Collecting bad debt
Doing your best to avoid bad debt and increase the probability of early or on-time payment is one thing. Knowing how to collect bad debts is another. Here are some helpful hints and tips:
- Communicate with your customer in a friendly and professional manner. There’s no need to harass them and you may be surprised how accommodating they are.
- Try and find out the main reason why they haven’t paid and come up with a mutual solution.
- Keep a record of contact and all communication with your debtor in case you need to take legal action.
- Try negotiating with your debtor and see if they can make some part-payments if they are struggling.
- Write non-threatening letters of demand, clearly outlining the debt and past communications in a professional manner referencing harsher action.
- Engage a debt collector.
In the end, payment terms and conditions communicated clearly on all account applications, invoices and statements will help mitigate overdue payments and bad debtors.
Stop chasing money! Find out how to avoid the danger of debt by taking advantage of our free no-obligation consultation today.
With you in every success,