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Protecting yourself from bad debts

protecting-yourself-from-bad-debts

Bad debts can pass from one company to another almost like a disease, but there are ways to protect yourself from the contagion.

Even in times of prosperity and growth, bad debts can plague certain industries. Business groups such as the Council of Small Business Australia have long lobbied to improve the rights of creditors when it comes to collections.

There are, however, ways to protect your business from being hit by the misfortune, or mismanagement, of others. Following are some ideas to get you debt help.

Collections

Make sure your collections staff keep up with your customers’ payment approval processes, as some may require invoices to be sent to several different staff members at once to facilitate payment. Send out invoices promptly, with clearly stated payment dates, and immediately follow up any late payments with a collections call.

Terms and conditions

Make sure your payment terms and conditions are professionally drafted and legally binding. Also consider setting terms that include a reward for regular payment, such as a discount for on-time payment. If a dispute arises with a debtor, resolve it quickly and document the dispute resolution process.

Set credit limits

Keep new customers on small and manageable credit limits until you build up confidence in their ability to pay. Similarly, if a customer gets a bit sluggish in terms of payments, renegotiate their credit limits accordingly.

Finding the phoenix

Although they come at a cost, it can be a good idea to use the credit rating services to check a new customer’s background before extending them a line of credit. Similarly, it’s worth having a strong network of industry contacts to keep an eye on so-called ‘phoenix operators’: unscrupulous business owners who periodically leave creditors dangling by driving a business into bankruptcy, only to open again in a short period of time.

With a dedicated collections team, strong terms and conditions, well-structured credit limits, and strategies to spot phoenix companies and repeat offenders, you can help your business steer clear of bad debt.

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