Whether your business is small or large, there is a likelihood that you have customers who you provide goods or services to, with payment collected at a later date, essentially you provide your goods or services on credit.
As we all know, to run a business effectively, we need to have a good positive cash flow, where we are being paid on time for these goods or services, so we in turn can ensure we’re able to pay for any goods or services we receive from someone else on time.
In the perfect world, all bills would be paid on time, and we would have one less care in the world, but unfortunately, this is not the case – if it was, a business like ours wouldn’t be needed!
But if you’ve been in business for a while, chances are, you’ve run into an issue where a customer has paid late, or perhaps not paid at all. And while there are steps you can take to recover your debts, there are also a number of things you can do to help you avoid getting into a situation like this.
We’ve put together some of our favourite tips that can help protect you from risky customers and ensure that your business is using best practice!
1. Keep Clean Records
This might seem obvious, but in some cases, it is easier said than done. Make sure that you have a clear process and clean records of all transactions.
You should have records of your own business costs and expenses but also one for your customers. If you provide goods or services on credit, keep record of when payments are due, the amount that is due, if credit has been extended in any case, and any repayment plans. You can’t collect what you are owed if you aren’t quite sure exactly what you owed.
2. Credit Check Your Customers
It is common practice for a business to extend credit to customers, you may not realise it, but if you do provide goods or services an receive payment later on, you are effectively loaning money to your customers.
If you are taking on new clients or customers, consider running a credit check to assess their credit worthiness. You can make an informed decision before you work with someone. And though it may take a little more prep work up front, it will save you in the long run!
Learn more about credit checks and reporting here.
3. Ensure Your Trading Terms are Clear & Enforceable
If you have a business that provides credit of any sort (money, goods, services), or you are going to enter business transactions of any sort, you need to ensure you have clear terms and conditions of trade.
Your business trading terms clearly lay out how your business trades, including when you require payments, how you require payments as well as delivery terms and guidelines and how you will conduct business together overall. No matter the size of your business, or how well you know the person you are entering into an agreement with, you need trading terms.
Business relationships can be complicated, but by having trading terms, you can protect yourself and your business when things go array.
Learn more about setting up trading terms and conditions here.
4. Provide Clear Payment Terms & Invoicing
Your payment terms should be included in your trading terms, however, depending on the type of business you have, you may have varied options based on the size of the business or customer you are trading with. Ensure that the time period that payment is required and the way in which the account is to be paid is clear.
In addition to your payment terms in your terms of trade, your invoicing should be clear and inline with these terms. Ensure that the due date for payment is clear, the way in which it should be paid, including any referencing that may be required, and sent the invoices as soon as you send the goods, or provide the service.
To learn more about how you can improve your payments terms with suppliers, click here.
5. Incentivise Your Clients to Pay Early
Consider structuring your business model in a way that you can incentivise your customers to provide payment early. The easiest way to do this is in the form of a small discount. Many businesses offer a small percentage discount for early invoice payments. Though it may mean that you receive slightly less, you will receive it sooner than what you would if you stick to the normal due dates. The cash flow of many businesses is dependent on timely payments, so if you can have a way to get that payment even sooner, it can mean that you may be able to provide more goods and services to more people.
6. Establish Open Communication
Good communication skills are going to serve you well in all aspects of your life, not just in your business. But when it comes to your business, keep the communication open and regular. By making yourself approachable and responsive, if you have a customer who foresees an issue, you may make it easier for them to talk about it with you before it’s too late.
7. Send Payment Reminders
Life gets busy, and while you may end up with delinquent customers along the way who have avoided paying you, sometimes it has legitimately slipped other customer’s minds. Consider including sending payment reminders to customers before their payment is due as part of your invoicing and payment process.
You can do this in a number of different ways including emails, text messages or by mail. This is a popular practice of many businesses.
8. Keep Records (Especially if You Run Into Problems)
If you do find yourself extending credit to customers or not receiving payment at all, ensure that you keep records not only of the transaction, credit extension and payment records, but also, your attempts to follow up on payment. Keeping track of this information will help you in the long run if you need to pursue professional help, or legal action.
It can also serve as a learning process for what has worked and hasn’t worked for you for future transactions. Learn more about other debt recovery strategies that you can try if you find yourself struggling to receive payment from your clients.
9. Seek Professional Help
If you find yourself having trouble recovering payment or debts from delinquent customers, consider seeking professional help from a debt recovery agency. Here at JMA Credit Control, we specialise in debt recovery, and we make the process as easy as possible for you. We consider our process to be best practice and we can tailor our services to suit your individual needs.
For more information on how you can prevent bad debts in your business read more helpful hints here and to learn more about us and debt recovery services, click here. Our team has over 50 years of debt collection experience, and we are here to help you today! Call us on 1300 664 223 or click here to fill in your details and one of our friendly team will be in touch.