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Bad Debts - Prevention is better than cure

Updated: Aug 18, 2021

WE ALL HATE BAD DEBTS. So remember - Prevention is better than cure when reducing the number of bad debts.

Here are a few tips;

  • Avoid giving credit to a stranger, without undertaking a credit check.

  • If you have to give credit without doing a proper check, be sparing.

  • Giving credit can help you gain customer loyalty, but be careful.

  • There is no obligation to give credit to anyone.

  • Try to make it a habit, if your type of business will permit, to assume you will be paid on the spot. People don’t walk into a shop and expect to leave with goods without paying first. Why can’t we adopt this practice more in our business?

Sometimes you just can’t prevent bad debts so;

  • Jump on new customers who start to abuse your credit arrangement.

  • Make notes of every conversation you have with a debtor. If you have to make follow up calls, quote back to the customer what he/she undertook to do.

  • Immediately after you have made a call, make a note in your diary of the day on which you will next call if the money has not been received and keep a record of what was said.

  • Discontinue giving credit to the chronically bad payers. The time you put into them will destroy your profitability. You could be doing better things with the same time.

  • And if you have to, use a debt collector. Often the threat of employing one enough to get your clients to pay – especially when you remind them that lodging a debt with a debt collector will “adversely affect their credit rating”

What about the big customer who will not pay on time?

Small businesses often find their biggest customer is their worst payer.

You feel you can’t afford to be too demanding, in spite of the fact you’re entitled to your money. What should you do?

The answer is not to have one major customer that dominates your business. You will always be vulnerable while you let this continue. Set a maximum percentage of total sales from any customer and do your utmost to see this is not exceeded. If your big customer goes broke it could take your business with it. Sometimes, this is easier said than done, which we realise. It really is a reminder that you have to be ‘hyper vigilant’, and if that one big customer starts reneging on their payment committments, limit the work you do for them, until you can sort it out.

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