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4 Practical Ways to Foil Bad Debts in Business

Tue, Oct. 03, 2017 Posted: 08:03 AM

If you are in business, you know there is nothing as bad as getting a customer whom you serve then he or she fails to pay you. Most of the time this happens when a supplier fails to take simple precautions to ensure the client he or she serves can and actually pays for the service or product provided. Here are practical things you can do to ensure that you reduce or even eradicate bad debts in your business.

1. Check the creditworthiness of your customers
This is an important thing to do especially when you are dealing with customers who want to purchase huge amounts of goods. Some customers mean to pay debt but they are just poor in credit card consolidation and are unable to track their budgets. However, there are those who intentionally want to take advantage of the fact that many business people do not check their credit status so they easily get away without paying debts. To avoid this kind of situation, go an extra mile to run a credit report check to see whether your customers have a clean credit history or are in tax liens and they pay debts late.

2. Develop an information collection form
Similar to banks, businesses ought to gather information about the customers they serve. To do this, you can develop a simple one page form that will enable you to collect basic information from your customers. This information could include their identification and consent to check their credit standing. In most cases, businesses prepare two pages of application forms to enable them identify the legal terms alongside their customers and guard suppliers in the event there are challenges with payment. You may get samples easily online to get you started.

3. Document transactions properly
Ensure that you document every order you make to your customers accurately using their certified business name. In you documentation, you need to capture details such as quantity supplied, price, terms of payment and the date the delivery was made. Failing to document orders properly can create room for disputes leading to bad debts due to non-payment. After documenting your transactions, ensure you keep the proof of supply until the client has paid the amount owed to you in full.

4. Have a system of following up and collecting payment
Customers tend to learn very fast which supplier they will not pay on time. To keep them from adding you to the list of those that can wait, ensure that you send them accurate invoices in a timely manner. The best time to do this is immediately you ship a product or provide a service to them. After dispatching the invoice, be sure to get a confirmation that it has been received by the customer. Once the payment falls due and you have not received payment yet, follow up with the customer the day after. For customers who fail to make payment on time, establish how often you want to follow up with them the most efficient way to do so. For invoices that remain outstanding after 75 days, consider taking special action to recover your money. This could mean reaching out to the customer to find out what the problem is or resolving any pending disputes. If this does not work, consider involving a reputable debt collection agency.

Lara Sen