Our Top Tips For Avoiding Bad Debts

No one wants to believe the worst of their clients. The idea that they might not pay their bills on time, or generally be difficult, is not something we generally want hovering over a business relationship, but the reality is, it happens. Bad debts happen to businesses of all shapes and sizes, but hey can have a huge impact on your business cash flow. So the ideal situation would be for them not to happen in the first place! Today, we wanted to help you achieve that, with our 10 top tips for avoiding bad debts building up in your books.

Run Checks Before Working

One of the steps many businesses miss in preventing bad debts actually comes before you even raise your first invoice – and that’s your due diligence. Before you work with a client, it’s worth doing a financial health check, or at least a credit check, on your client. This is especially important if you are issuing big lines of credit to customers, or any credit at all. A simple credit check can give you an idea of how reliable a customer will be in paying you, and if you need to put any extra steps in place to protect yourself before starting work.

Be Selective

You don’t have to work with everyone who comes your way. A lot of start-ups have this mentality, but once you reach SME level the truth is you can pick and choose who you work with. And if you run the financial health and credit checks on a prospective client and they come back looking bad, then you are perfectly within your rights to choose not to work with them. Being selective about your clients, (and who you issue credit to) can save you a lot of headaches later down the line.

Make Your Payment Terms Clear

Be very, very clear about what your payment terms are, and make sure your client understands them up font. In an ideal world, you will have a contract in place for them to sign, part of which will indicate that they understand the payments terms and will adhere to them. this not only means they are more likely to pay you on time, but it means you have legal recourse if they don’t.

Be Consistent With Your Invoicing

It is much easier for your customers to pay you on time if they understand how and when you invoice, and that doesn’t change. So if you are invoicing for a monthly service, ensure you always invoice on the same day of the month, with the same terms. Being consistent in your invoicing – from what they look like to the email address you send them from – can be a huge help in ensuring payments don’t go overdue.

Send Reminders

If a payment does end up going overdue, then it’s important to send our reminders quickly. Don’t wait a while to see if they ‘might pay’. Don’t wait a few days, and definitely not a week. The day after the payment goes overdue, send a friendly reminder of the payment and the due date. As a general rule, it’s a good idea to have a policy of chasing debts after a fixed number of days following the due date.

Use A Professional

If you are still struggling to recover payments from overdue invoices, it might be time to bring in a debt collector. A professional debt collection agency can help you recover payments from any client within the last 6 years, and do it in a polite, professional way so that you can preserve your relationship with your clients as much as possible. While not a good first option, having a professional debt collector on hand can be invaluable later on down the line.

At Debtcol, we specialise in helping business owners not only collect late payments, but put processes in place to help prevent them in the first place. With our help, you can avoid bad debts and see a much healthier cash flow. If you would like more information, just get in touch with the team today.