It may be one of the highest risks you face in Business, in terms of cost. It’s virtually impossible to stamp out Bad Debt, but keeping it under reasonable control is a strong possibility.

Here are Bullet’s top tips for minimising Bad Debt:

Research you Customer:

If you are likely to extend credit to a prospective Customer, nose into their Credit History. Be upfront and let your client know that for Credit Risk Minimisation, it’s your policy to do a background check. You can give them the option of providing references from their current Suppliers. Experience counts, so perhaps getting specialist help is the best option here. We recommend using Search4Less for unlimited access to: Company Reports (including Images!), Director Reports, Shareholder Reports, Judgment and Bankruptcy Reports. At the moment they are operating on a “Free Trial” basis.

Request a Deposit:

If you’ve got an extended project on, or need to buy materials to build a product request a deposit to cover the minimum costs. This is normal practice in many businesses so don’t be shy about asking. Providing an estimate, with a deposit required as a note may be the best way to bring it up.

Establish a Payment Collections routine. Try something like this:

  • Day 1: Issue the invoice on completion of the job, or delivery of the finished product.
  • Day 3: Call to confirm that the invoice has been received and approved.
  • Day 25: They have one working week left. A gentle reminder e-mail, with the invoice details and your bank details for EFT.
  • Day 33: There seems to be a bit of a delay. Get on the phone. Show your concern and patience, but be firm.

Request a minimum payment on overdue accounts:

This method of collection is usually employed by Credit Card Companies, but you can use it too. Some of your Customers may be operating a payment strategy to maximise available Cash so they’re deliberately delaying payment. You might usually issue an invoice with 30 days payment terms. When the 30 days have gone by, you begin to realise that you could be waiting 60 days + to get paid. You could offer your Customer a comprise and request that they pay a portion of the balance they owe you, as a gesture of Good Will. You can request the same amount to be paid in the follow up phone call. This indirectly sets up a payment plan, that ensures full payment, over an extended period of time. If there was a risk of bad debt here, you are minimizing it now. Your willingness to be patient sets you apart from their other Creditors. This further cements your relationship with your Customer, and increases the likelihood of full payment.

Discount and Reward Options:

Some Businesses offer their Customers a discount for paying on time. If you are having difficulty receiving payment, offer a discount on their next invoice as an incentive to pay now. If you’ve already been kept waiting for payment, there’s been a negative affect on your Cash Flow. You are spreading the cost of this negative affect by discounting in the future as opposed to now. Don’t forget to adjust your Cash Budget to incorporate this discount.

This method can also be employed, where work had been completed and signed off, but a minor dispute arises after delivery. If your Customer is demanding a partial refund, offer a discount on the next invoice instead. This continues the good relationship you have, and further guarantees future work. You are spreading the cost of managing this dispute.

Make that call!

So the 30 days have gone by. There’s no payment appearing in your account as yet, and the phone is silent. Break the silence. Your Customer knows they owe you. The sound of your friendly, sympathetic, but insistent voice is much more provoking than an e-mail. Don’t be shy. They’re expecting the call.

So that’s our Tips for Credit Risk Management and minimising Bad Debt. Let us know in the comments below if you have bad debt prevention tips you’d like to share.

 

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