Bad debt is a serious risk for every business. Bad debt is accounts receivable that will not be collected and therefore, treated as a loss. Let’s look at 10 effective tips to help you avoid bad debt in business.
10 Effective Tips to Avoid Bad Debt in Your Business
1. Make Sure Terms and Conditions Are Clear to Your Customers
Draw up precise documents. You may want to enlist legal help for this crucial task. When everything is clear in your contracts, customers are more likely to pay you on time.
2. Send Out Invoices Promptly
You should get into the habit of sending an invoice as soon as your product or service is delivered. If payment is late, begin contacting the customer immediately. You don’t want customers to think you don’t care or notice if they pay late.
3. Send Your Invoices to the Right People or Departments
In some cases, late or missing payments can be traced to miscommunication. Make sure you know the right individual or department to send your invoices to. The invoice may require approval before being paid.
4. Learn as Much as You Can About Your Customers’ Payment Schedules
Many businesses send out payments on a regular schedule. Knowing this gives you the option of adjusting your schedule of sending invoices to match your clients’ timeline.
5. If There’s a Dispute, Resolve It as Quickly as Possible
If the customer is delaying payment because of a dispute, you’re unlikely to get paid until the matter is resolved. Address the matter and do whatever you can to make the customer satisfied.
6. Document All Transactions
It’s important that you can easily bring up records for all your transactions. This includes records of shipments, invoices and payments made by clients. You want to be able to produce the appropriate documentation in case any disputes arise. If your recordkeeping needs improvement, upgrade to an efficient billing and invoicing software.
7. Establish a System for Collections
In the event that someone neglects to pay after multiple requests, you should have a procedure in place. Going to court should be a last resort as this can be costly and time-consuming. There are other, intermediary measures you can take such as negotiating a payment plan or using mediation services. If necessary, however, your attorney can recommend further action such as working with a collection agency.
8. Consider Changing Your Terms for Clients Who Are Consistently Late
You could, for example, charge them higher prices or stop extending them credit altogether. In some cases, it’s even worth potentially losing a customer who increases the business risk of bad debt.
9. Use Multiple Methods of Contact When Payments are Late
Very often, phoning the customer is more effective than email or direct mail. With a phone call, at least you have a chance to engage in a two-way conversation. However, you may find that different contact methods work better than others with particular clients.
10. Improve Your Business’s Cash Flow with Invoice Factoring
When you factor your invoices, you receive immediate cash. This frees you from worrying about late payments and can quickly boost your cash flow and non-recourse factoring can greatly reduce the risk of bad debt.
Bad debt in business can cause serious problems if you don’t address the causes. You can put yourself in a much stronger position by factoring your invoices and improving your cash flow. Invoice factoring actually frees you from even dealing with many of the above issues as the factoring company collects payments.
If you want to learn more, contact Riviera Finance for invoice factoring as a small business financing option.