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Avoiding Bad Debts for Business Owners

Any small to medium business owner here in the UK will be aware of just how important it is to maintain a steady cashflow.  After all, this can have a huge impact on your company’s ability to thrive and grow, especially in these uncertain economic times. 

Any bad debt is likely to have a negative effect on a company’s profits so today we’re taking a look at some techniques business owners can use to avoid bad debts and protect your business from financial strife and even bankruptcy.

Make a habit of always carrying out a credit check on new customers before discussing payment terms with them.  If your potential customer has a poor credit rating it may be worth considering offering them an extended repayment period.

Consider your payment terms and be aware that there is no single solution when it comes to payment – it depends on your business, your service or product, and your customers.  Thirty-day invoices are fast becoming a thing of the past and it’s probably in your interest not to even suggest that it’s okay to wait a month before paying.  A 30-day invoice is likely to go into the pile for “next month” which would probably mean the end of next month.  Why not consider 7, 10 or 14 days for payment. 

Make it easy for customer to pay you by offering a variety of payment options that are relevant to your customer base – for instance, cash, card payment, direct deposit, online payment, etc. 

Make sure that you always have a signed contract where the terms and conditions of the credit application are clearly set out in detail.  Ask the potential customer to read the offer documents very carefully before signing so that you can be sure that they are aware of the terms.

Make sure that you invoice promptly and that your invoice details are correct – you can’t get paid if the invoice does not go to the right person with the right information.  Check email addresses (or postal addresses) are correct, that you include the customer’s own reference (if applicable) and that the invoice fully details the service or goods provided.

Always follow up on the customer a few days before the contract expires.  This should act as a subtle reminder to the customer about the repayment date agreed upon.  Discuss the consequences of late payment and make a note of their reply.  If using a debt collection agency, this means that you will be able to inform the agency so that they can use other methods to recover the monies owed to your business and will enable you to maintain a good customer relationship and carry on doing business with the customer in future.