Hard-Core Collections: Brutal But Effective Way to Manage Debts

Lowering the risk
Do as much as you can to reduce the likelihood of overdue payments becoming bad debts. This is not always easy, especially if you are just starting your business and every new sale is cause for celebration.

Beware – many small businesses take on large new orders, only to face months of struggle before they get paid.

Get tighter control
Tight credit control is your first line of defense to avoid or limit your exposure to bad debts. Some essential steps:
  • Complete thorough credit history and business reference checks before you offer credit to new customers.
  • Set reasonable but fair credit limits and tell employees to notify you if a customer wishes to exceed an agreed credit limit.
  • Insist that you approve additional credit extensions in advance.
  • Include clear payment conditions in your payment terms.
  • These conditions may seem tough but you’ll find most honest customers don’t mind, and ‘firm but fair’ is a good principle to follow.

Payment conditions
  • Structure your payment conditions to encourage prompt payment.
  • Make sure your terms and conditions specify if and when you will start to charge interest on overdue amounts. 
  • Ensure customers sign acceptance of your terms and conditions as this can eliminate future disputes.
  • Implement the terms and conditions first for new customers and for customers wishing to extend their credit limit. You may find it more difficult to introduce the terms to existing customers, especially those who have been loyal in the past or who you know personally and don’t wish to upset.

Payment details

You’re more likely to be paid promptly if you include full payment details on invoices and statements.
  • Give your billing address and bank account details and offer more than one payment option such as check, credit card, or online payment.
  • Show clearly the amount owed and when payment is due.
  • Include any applicable discounts to encourage prompt payment.
  • Give details of interest charges that will be applied to discourage late payment.

"Tight credit control is your first line of defense to avoid or limit your exposure to bad debts."

Provide the right information
Remember to include any extra details that a customer might need to pay you such as the order number or contract number, details of who placed the order, and an account number. Leaving these details out could delay payment.

If necessary, contact the customer before billing to check exactly what information they need to expedite payment.

Prevention is easier than collection
Good systems are a problem-prevention tool:

  • Bill promptly, as soon as the job is completed. 
  • Keep an up-to-date record of what each customer owes you. 
  • Watch out for sudden increases in order values. A customer may build a good credit record with you by paying a series of smaller orders on time, followed by a much larger order. This deserves investigation and possibly another credit check before you approve the order.
  • Follow up overdue accounts immediately to uncover the problem. 
  • Call a few days after the payment is due. 

Be top-of-mind
Once customers know you will always make contact if payment is late, you’re more likely to get priority when they schedule payments.

Many ‘pay the ones that make the most noise’. Within reason, make sure this is you.

Stick to your payment terms
Stop supplying customers who haven’t paid accounts on time. You can use the fact they need your goods or services as leverage to get paid promptly. This might cost you some business, but it will also reduce the risk of being exposed to bad debt.

Similarly, stop supplying goods to customers in excess of their credit limit until you have reassessed their creditworthiness.

source from: http://smallbusiness.comerica.com/profitability/becoming-more-efficient/effective-debtor-management/



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