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Best Practices For Preventing Bad Debts

Best Practices For Preventing Bad Debts

In the dynamic world of business, managing cash flow is critical to success. However, one of the biggest hurdles that businesses face is dealing with bad debts.

Bad debts occur when customers fail to pay their outstanding balances, leading to financial losses and operational difficulties.

To safeguard your business from this risk, it is essential to establish effective strategies for preventing bad debts.

In this blog post, we will explore the best practices that can help you minimise bad debts and ensure a healthy financial standing for your business.

Credit check companies you do business with

The first step in preventing bad debts is to carefully screen and evaluate potential customers before extending credit.

However, it is alarming how many businesses bypass this step and issue large amounts of credit to businesses that pose a significant credit risk.

Conduct a thorough credit check, review their payment history with other suppliers, and assess their financial stability.

By selecting reliable customers, you can significantly reduce the chances of encountering payment issues.

Conduct Credit Checks and Set Credit Limits

Before extending credit to a customer, perform comprehensive credit checks to assess their creditworthiness.

Based on the credit evaluation, set appropriate credit limits for each customer. Monitoring credit limits will help prevent overextension of credit and reduce the risk of bad debts.

Establish Clear Credit Policies

Developing clear and concise credit policies is crucial for preventing bad debts.

Clearly communicate your credit terms, payment due dates, and consequences for late or non-payment.

Make these policies easily accessible on your website, in your contracts, and in any communication with customers.

Ensuring clarity and transparency will set the right expectations from the outset.

Prompt and Accurate Invoicing

Create professional invoices that are accurate and contain all the necessary details, including payment due dates, itemised charges, and your contact information.

Send invoices promptly and make sure they reach your customers in a timely manner. Clear and well-documented invoices enhance transparency and provide customers with a clear reminder of their obligations.

We’ve previously wrote about this in more detail in our article on the importance of good credit control!

Implement a Robust Accounts Receivable Process

Establish a systematic process for managing accounts receivable.

Send reminders for upcoming due dates, promptly follow up on late payments, and escalate the intensity of your communication as necessary.

Consistent and proactive accounts receivable management will help identify potential issues early and increase the likelihood of timely payments.

Offer Flexible Payment Options

To facilitate timely payments, provide customers with multiple payment options.

Accept traditional methods such as checks and bank transfers, as well as online payment platforms and credit card payments.

Offering diverse payment options makes it convenient for customers to settle their debts promptly.

Build Strong Customer Relationships

Developing strong relationships with your customers is vital for preventing bad debts.

Regularly communicate with your customers, address their concerns promptly, and provide excellent customer service.

Strong relationships built on trust and respect increase the chances of timely payments and foster long-term loyalty.

Conduct Periodic Account Reconciliation

Regularly reconcile your accounts receivable to ensure accuracy and identify any discrepancies.

Review outstanding balances and resolve any disputes or discrepancies promptly. By maintaining accurate records, you can minimise the risk of bad debts arising from accounting errors.

Monitor and Manage Aging Receivables

Keep a close eye on aging receivables to detect potential risks.

Identify customers with a history of late payments or significant outstanding balances.

Implement proactive measures such as setting up payment plans, reducing credit limits, or requesting upfront payments to mitigate the risk of bad debts.

Failure to do so will leave you seriously at risk of your customers defaulting on payment, impacting your cashflow!

For more, take a look at our article on the common mistakes that lead to unpaid invoices, and how to avoid them.

Seek Professional Assistance, if Necessary

Despite your best efforts, there may be instances where bad debts persist.

In such cases, consider seeking professional assistance from a commercial debt recovery specialist. These professionals can help you navigate the complexities of debt recovery to maximise your chances of getting paid on time.

Choosing Darcey Quigley & Co to recover your commercial debt

Here at Darcey Quigley & Co we’ve been recovering commercial debts for businesses all over the world for 16 years.

There isn’t a scenario we have not came across before or excuse we have not heard.

Our tried and tested process ensures you are paid quickly without sacrificing the relationship you have with your client.

Why choose us?

  • We operate on a no win, no fee basis.
  • Cases actioned within 1 hour with 48 hour turnaround.
  • 93% success rate recovering overdue invoices.
  • Fees starting from just 3%.
  • Recover late payment interest and compensation on your behalf with an 89% success rate recovering additional charges.
  • UK & International coverage. 
  • Rated 5 Stars on Trustpilot.

If you have questions about a business debt schedule a call with one of our commercial debt specialists here or phone 01698 821 468.

Lynne is the Founder and CEO of Darcey Quigley & Co.

She is passionate and determined to help businesses get overdue invoices paid quickly.

Having worked within the credit management industry for over 27 years and ran UK leading commercial debt recovery specialists Darcey Quigley & Co for over 16 years, Lynne has helped businesses recover commercial debts from every continent across the globe.

Connect with me on LinkedIn!

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