As a new year has begun, it is an auspicious time for businesses to consider how they can go through a bad debt detox. Thinking about how to reduce the stresses and financial strains of ‘non-paying customers’, and controlling your business debts is crucial, especially in the current climate.
Early identification of “bad debts” underpins business stability. Here are some useful steps to help you manage your cash flow and avoid bad debts. Show your customers they cannot take advantage of you.
1. Get Back On Track
Long overdue invoices, even if they amount to £10, £20, or £100, can be seen as a serious sin by a small business owner.
It can be tempting to spend just as much time pursuing small debts as large debts, but it makes sense to prioritise.
If your business is struggling with numerous overdue invoices, why not rank them highest to lowest value, focussing your efforts on those of the highest value first.
2. Approaching Your Customers
Having a communications plan in place for how you intend to approach customers you have extended credit to is fundamental. Early identification of bad debts underpins business stability.
Such a plan should spell out the days before and after an invoice is due, as well as the methods you are going to use (letter, email, phone or text).
Consistently following the same routine allows your customers to find ways to delay paying you. For example, if your strategy is to always send a reminder letter on day 30, make a phone call on day 60 and refer to a debt collection agency on day 90; your customer will likely realise they have a further 30/60 days after the due date of the invoice to pay before it gets to a collection agency.
To avoid this, take a varied approach to each case. View each customer individually and decide which of your processes would be more effective; based on value, knowing your customer and their financial circumstances. You don’t want to be chasing a company 60 days down the line if you know they are already in financial difficulties; you want to get in there early or else your chances of getting payment will become trickier.
3. Know Your Customers Credit Worthiness
It’s important to know your customer before you extend them credit. Credit checking is relatively inexpensive and straightforward for businesses to carry out.
You need to identify customers who might be considered ‘High Risk’ or unworthy of credit. Credit checking will show your customers’ payment behaviour, credit history and ability to pay in the future, providing you with peace of mind.
If you want to keep your costs down, try focussing on credit checking the customers you know less about, and from whom the potential amount of business you may gain is significant.
Do collect all the relevant contact information, including email for your customer.
4. Review Your Credit Policy
A credit policy spells out how a business will decide who is given credit, payment date and terms, the limits set on outstanding balances and the process to deal with overdue or unpaid invoices. Easy credit terms can be a blessing when it comes to maximising sales growth, but it can be a curse if those customers don’t pay.
Make sure your credit policy is clear and concise, ensuring it specifies timeframes which trigger specific actions such as a phone call or a chase email.
5. Know When You Need Support
As a general rule, it’s advisable to contact a debt collection specialist/agency when your reminder phone calls, letters or emails have not worked. It is important to keep in mind that the sooner a debt collection agency is passed an overdue account, the more likely they are to recover what’s owed to you successfully.
If stated in your terms of business, costs relating to debt collection may be passed on to customers who don’t pay.
Want To Know More?
For more information about Wright Hassall Debt Collection Services, please contact me on 01926 884670 or email email@example.com