Business

How to Avoid Bad Debts

If you own a business or work self-employed, you are likely to understand that not all customers will pay you immediately, some will take longer than they should, whilst others will never pay you at all. Providing services to customers who do not pay can be immensely problematic, as they can bring your business/operation down. These can be classified as bad debts and if you want your business to thrive, they need to be avoided like the plague.

Be selective

This is not always possible as ultimately, we live in a very small island with little potential business, however, it would be wise to perform a background check of your prospect prior to engaging in any form of business. If you are still at the early stages of your business venture, it may be difficult to refuse clients, however doing work for someone who does not pay will be counterproductive. If you have started off a business relationship with a client you are not sure of, it would be best to get paid per task, to ensure that he is well equipped to compensate for your services.

Formal agreements

When initiating a relationship with a new client, it may be wise to consider a formal agreement, especially if you are undertaking a project of certain financial value. In such agreements, you may take the opportunity to stipulate the payment terms, including specific amounts and frequency. Ensure that your customers are well aware of all the terms and conditions.

Efficient invoicing

In order to get paid, you will need to issue invoices. To receive prompt payments, these need to be issued at the earliest and sent to the right person or department. This should be clarified from the offset so as to ensure you do not waste time going back and forth to get paid. You will also need to ensure that you have an efficient reminder procedure in place so that you can chase late payments. It would also be ideal to call your customer whenever a payment is being delayed. In this regard, a diplomatic approach is recommended especially if you have an ongoing relationship with the client.

Resolve issues quickly

If your customer has complained over a service and is awaiting any form of remedial action, it is highly unlikely that you will get paid. This is why you will need to work towards an effective resolution and ensure payment.

Formulate a strategy for non-paying clients

You will need to re-evaluate your relationship with clients who have not paid. In certain cases you may need to have patience with clients, especially if they had always paid on time in the past. In certain cases when the clients are simply no longer worth it, you will need to consider terminating the relationship.

Thinking about going self-employed? Then you should re-read this!

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