Our top 10 tips for avoiding bad debtors

Despite the assurances of an 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.

It is an unfortunately common situation for businesses to experience clients that leave invoices unpaid.

Maintaining a positive cash flow and avoiding bad debts should be of utmost importance to any organisation.

Bad debts, such as unpaid invoices, are among some of the main reasons for cash flow problems.

Having a successful business credit management team can be a tactical way of preventing these from occurring.

Having overseen the collection of millions of pounds worth of debt, we have compiled a top 10 tips list.

Avoiding Bad Debtors – Our Top 10 Tips

There are many preventative measures that a business can take to prevent debts from happening in the first place.

We understand that knowing how to implement these can be a challenging task.

Our list presents the most basic and easiest ways to prevent a business from accruing bad debtors.

1. Credit Reporting All Potential Clients

Obtaining a credit check on potential clients is the most basic prerequisite for any new client requiring a credit facility.

If the credit check is amber or red, this indicates whether they are likely to pay for services they receive.

Amazingly, some business owners still do not carry out credit rating checks during the day to day business.

Not carrying out checks on credit limits the chances of getting paid on time.

2. Bespoke Terms and Conditions

Terms and conditions that are professionally drafted will help protect you and your business.

These conditions will define your business model, protect your rights and limit your liabilities.

It is extremely common for terms and conditions to be discussed in business, and no client should have a problem with this.

3. Payment Terms

Payment Terms should be agreed upon at onset and should clearly state what your terms are for payment.

Adopting this simple practice will ensure your client knows when the due date and how much they owe.

In most situations, Payment Terms are signed contracts which means the client cannot simply back out of payment.

4. Invoice On Time

It is important to make sure that you 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 clients 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. The Organisation Of Documentation

Maintain accurate records and have an 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 clients every six months to monitor their financial situation.

As well as safeguarding new clients, this is an effective measure for existing ones also.

8. Ask For Payment

If a client is not paying on time, do not be shy or hesitant about asking for payment.

No business can survive if they are not paid for the services or goods they deliver.

9. Change The Ways In Which They Can Pay

The days of ‘cash only’ payments or the use of cheques are long gone.

Utilise all modern methods to allow your client the option in which to pay.

Putting your bank details on all invoices will make it easier to receive prompt payment.

10. Take Action To Chase The Debt

If a client does not pay and ignores your requests for payment, do not be afraid to instruct a third party to recover your debt.

A professional debt collection agency is by far the best choice for any form of debt recovery.

Additionally, adding a clause in your terms and conditions can help avoid non-payment.

You should advise that in the event of non-payment, you reserve the right to instruct a Debt Collection Agency and they may be liable for recovery and/or legal costs.

For more advice, contact our New Business Team who will provide a free and frank assessment of your situation.

Posted on March 19, 2018