Owning a business means that you unfortunately come face to face with debt on a somewhat regular basis – probably more regularly than you would like to think or admit.
This debt is usually due to customers or clients who for whatever reason have not paid you. They may have purposely avoided making the payment or it might have slipped their mind – either way, when it happens it can have a very negative impact for you and your business’s cash flow.
Even if your business is tremendously successful and is not relying on that one client’s money to survive, the debt occurring in the first place is still frustrating and has an impact to your business.
When debts occur, it means that someone has to spend time following them up. It might be someone in the business or you might outsource your debt collection efforts, but either way, having to follow up outstanding payments requires time, energy and money from you.
Now, while we would love to say we’ve got all of the tips you need to avoid this happening in the first place, we can’t. That’s because you’re reliant on your customers doing the right thing.
What we do have though, is some information about the steps you can take to help avoid this situation arising from arising. With these safeguards in place, you will have a lot more luck in avoiding these issues from cropping up as frequently.
Steps you can take to avoid bad debt in your business
Here are some of the best steps and ideas you can implement in your business to help prevent you from suffering from bad debts.
Be careful about who you work with
We mentioned that as a business you can take all sorts of steps and create all sorts of process to avoid debts, but if you provide goods and/or services on a credit basis, you are somewhat at the mercy of your client base.
So, what can you do about that? Well, you can take as many preventative steps as possible to avoid taking on customers and clients who may end up being delinquent.
How do you know if a client is going to be delinquent? Well, they aren’t going to straight up tell you, but a great indicator of future behaviour is past behaviour – which is where something like a credit history report can come in handy.
If you want to ensure you’re working with a client who is going to be able to make their payments and potentially form a strong customer relationship with, then take the time to really learn who they are.
If your services or goods are the kind that are either quite highly priced or on a retainer basis, perhaps you should consider having a few meetings prior to working with them to gauge who they are and what they are about. And of course, this information, in conjunction with their credit history, which will show their past payment behaviours, should provide you with a lot of information and unveil any red flags that may be lurking.
Make sure you have solid terms and conditions and payment terms documents
If you want a client to stick to a certain terms, such as payment timeframes and communication, then you need to provide that information to them.
Make sure you have solid contracts in place that outline your payment terms, as well as the terms and conditions of working with you. You can expect them to be mind readers.
Having these documents in place will also help to protect you if things go wrong. If they have signed agreements, these may be used in legal action (if that is ever required).
You can learn more about terms and conditions documents here.
Keep control of your business with proper processes
One of the best things you can do is make sure it’s as simple as possible for you to have a thorough and clear view of your accounts and payments. You need to be able to easily see who has and has not paid.
As part of your accounts process you should have not only an invoicing procedure, but payment reminders and a procedure in place for when an account is overdue.
The more pre-due date work you can do to get your payment, the better. If you can avoid having to spend any time on having to chase overdue payments, then that this great.
However, if you’re reading this, you’ve probably had to deal with overdue accounts and payments. So, it’s just as important to have a solid process in place to know what to do when this occurs. This process should include reminders, contact with the delinquent client and a cut-off point where you stop spending your precious time chasing it and you bring in the professionals.
Really evaluate your processes and terms
Don’t be afraid to take a step back and think about whether you’ve definitely got the best processes in place. Sometimes it feels like you’ve got everything exactly how it should be and other times, if you’re being completely honest with yourself, your businesses processes are not really as robust as you would like to think.
If you’re constantly having to deal with delinquent customers, what is causing this? Is it the way you evaluate customers prior to them joining you, is your payment process easy for them, do you take a while to invoice, are you too flexible or not flexible enough? As we said, you are somewhat reliant on customers to do the right thing, but you’re also reliant on you being honest with how things are working within your business.
You might simply need to change your payment terms time frame or perhaps set up a reminder process for invoices, or you might need to consider enlisting professional help.
Partner up with a professional
We touched on this earlier, but when you have delinquent customers you end up spending a lot of your precious time trying to chase them up. While you might have an account team that shoulders the brunt of this, the reality is when a customer has an overdue invoice and someone in your business is spending time chasing it, it means they are not spending time on things that could be helping your business progress further.
So, for this, we suggest that you consider working with a professional debt collection team to help you. Debt collection can sometimes have a bit of a bad name, but it is a necessary process – and there are people who can help you achieve better recovery results than if you were to spend your own time and resources on it.
While you may think that it’s just another expense, the reality is that a debt collection agency will have a higher likelihood of being able to recover your debt than you, given their resources and experience. This means that you’re more likely to see your money again, and even if you have to pay a small fee to do so, it’s better than not receiving it at all. Plus it’s not as expensive as you might think.
When you need professional debt collection for your business
If you own or operate a small to medium sized business in Australia – any industry – and you’ve experienced the hassle of delinquent customers, why don’t you give us a call here at JMA Credit Control.
We’re a team of highly experienced debt collection professionals who can not only collect debts for you but also help you create better credit management processes in your business.
If you need debt collection services anywhere in Australia, you need JMA.