How to Reduce Bad Debts

December 18, 2016

Prevention is better than cure when reducing the number of bad debts:

  • 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.

If it can’t prevent bad debts then:

  • 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.

 

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.

 

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