The debt recovery process can be the most frustrating aspect of running a business. It is maddening that you provide your service or product to a business organisation and not get paid. This happens too often in the B2B sector because the vendor didn’t implement some simple procedures. With just a few adjustments to the way you handle your accounts and invoicing, you can avoid bad debt, increase cash flow, and progress in your business venture.
Here are the top five ways you can avoid bad debt.
1 Tighter Debt Control
It is your first line of defense against managing debt and maintaining your business’ financial health. For starters, you need to draw up new terms of trade. Like your all business documents, have your unique terms of trade checked by your lawyer and accountant. Before extending the credit terms, you need to have your customers sign the agreement. You need to complete a credit assessment of your customer and perform reference checks before offering credit to new customers. You can also mention the name of your associate debt collection agency in the agreement and invoices. This way, you are advising your customers of the consequences of late or no payment. Lastly, you need to include clear payment conditions in your agreement, and you also need to specify when you will start taking actions when the payment is no made.
2 Smart Payment Terms
You need to structure your payment terms in such a way that the customer will be encouraged for prompt payment. For example, you can charge interest on outstanding balances or offer discounts for faster payments. Refrain from giving discounts when the payment is late. You need to be firm in this aspect. However, if yours is an old customer that you have known for years, you can make exceptions, that too occasionally to foster those business relationships. On the other hand, you need to make your payments clear and mention that you expect to be paid on time. Always try to contact the customer, whether by email, phone call, or in person if the payment is late.
3 Preventing Debt is Easier than Collecting Debt
To avoid bad debts, you need to create a good system. The first thing you need to do after offering your product or service is sending out the invoices and statements to the customers on time. Prompt invoicing leads to less chance of you missing the next payment cycle. On the other hand, you need to keep updated records of what each client owes you and emphasize on the customers who are approaching their credit limit. Once the payment is noticeably overdue, take actions with an immediate follow-up and try to uncover the issue the customer is having for not making the payment. However, ensure that you don’t appear desperate to recover money from the client. If your customer is a large business organisation, it is okay if they miss small invoices.
4 Deal with Overdue Payments
Depending on the customer organisation and how late the payment is, you need to approach the overdue amount. For starters, you need to identify the reason why the payment is late. There are plenty of reasons why the customer failed to make the payment on time, such as an issue with your invoice, service, or product. If this is the case, you need to sort all the things immediately. Moreover, there could be a payment or accounting system glitch. Another reason could be the customer is having long-term or temporary cash flow problems. If this is the case, the payment could take longer than you expected. However, if you can negotiate another payment schedule, it may enable them to payout the bill.
5 Avail the Services of a Debt Collection agency
Clients quickly learn who they don’t have to pay on time. Hence, you need to establish a stable client-customer relationship where the cash flow is regular and on time. However, if the client is delaying the payment for whatever reason, then it would be wise if you hire a debt collecting agency. They will help you retrieve your payment while saving you a lot of time. The key to successful debt recovery is the speed of action, this is where Boston Commercial Services offers the incorporated services, providing professional and discreet debt collection solutions for clients of every size across all industries.
These are some simple ways to avoid bad debt. Clients are not easy to deal with, and you may experience a point in your business where a client or two has refused to make the payment or delayed the payment. In such scenarios, you must make decisions diligently.