Cash-flow issues and bad debts are the highest reason businesses fail and go bankrupt. You’ll have the simplest business and corporations within the world that provide an excellent product and repair, massive orders, and benevolent customers – but if the cash isn’t coming through, it can all perish in nothingness. Rescuing your business from bad debts can help keep cash flowing and eliminates the problem of chasing customers.
Getting paid on time is vital to the wellbeing of your business. Having good cash control is vital for having a healthy income and a profitable business. While good credit control can help avoid late payments becoming a significant problem, there should be times when a customer can’t or won’t pay. Most businesses know that a particular percentage of sales won’t be paid and find themselves a nasty debt; here are some steps avoiding Bad debts.
Eliminate Terms
Make Terms that allow the customer 30, 60, or 90 days to pay instead of requiring the products or services to be purchased upon delivery. Structure your payment terms to encourage timely payment. For instance, you can a 5% discount for payments made within 30 days or charge interest on outstanding balances. Review accounts on a monthly basis to check which customers are paying on time and which aren’t. The longer a receivable is outstanding, the upper the danger it won’t be paid. Make the client sign your term and conditions form.
Collection Policy
Establish a set policy and develop a series of letters and actions that your company will deem late-paying customers. If the customer is a month late, send a polite reminder letter. Follow up with a call seven days after the letter and again 14 days later. When the account becomes 60 days overdue, a second stronger letter is shipped, perhaps telling the customer that while you value their business, you want to get paid.
Make sure your terms of trade specify once you will start to charge interest on overdue amounts and, therefore, the rate of interest you’ll be charging. Warn your client that you simply can also charge them a recovery fee or legal fees incurred in recovering the debt. In my opinion, by posing for money upfront, you’re sending a robust message to your customer that you simply are serious about your services and your money. They’re going to respect you for it.
Collection Agencies And Lawyers
It may be necessary to assign a nasty debit account to a set agency to proceed with collections. If you assign the account, you continue to own the debt. The agency enjoys a commission of whatever they accumulate. If you sell the debt, the agency pays you a little percentage of the face value of the debt and keeps whatever they collect. Once you hand the debt over, there’s a robust possibility that the customer will realize you’re serious about chasing the debt. They’re going to ante up immediately often – fully or in agreed installments. Most times, a letter from a lawyer or agency is enough to try the trick.