Here are 10 top tips on how you can avoid toxic debts, without having to stop offering credit completely.It’s bad to be in debt you cannot afford, but it can be even worse to be the person or company owed the debt, and have to admit to yourself that you are never going to receive your money.
1. Credit Checks
It shouldn’t need saying, but it does – many companies still provide credit, or provide goods with payment taken later, without credit checking customers. This should be your first resort, not your last resort.
2. Credit Limits
Limit your exposure to individual debts by placing a sensible credit limit on customer accounts; if they reach this limit without paying up, don’t provide any more goods and services until you get some money.
3. Payment Terms
It’s no use providing goods on 30-day terms if your customer operates on 90-day payment terms. Be clear upfront about how long they will have to pay, and be prepared to enforce the deadline.
4. Terms and Conditions
Build on the above with a full set of terms and conditions that makes clear things like: you can cut off their service due to non-payment; you will charge interest and fees on overdue amounts; and so on.
5. Invoice Promptly
The sooner you invoice, the sooner you get paid, so make sure invoices go out promptly either once a month or, even better, as soon as you have supplied the customer with their goods or services.
6. Follow Up
An informal follow-up is another often-missed opportunity to keep on top of things. Check your invoice has been received and is being processed, and there’s less chance of it going missing.
This one isn’t for everyone, but you might want to offer an incentive for payment made on time or even early; this could be an earlybird discount or partial credit towards the next bill, encouraging a follow-up order from the same customer too.
If you haven’t been paid by deadline day, contact the customer on the day. There may be a legitimate excuse, in which case they should make payment as soon as possible. If not, firm action may be required.
Stick to your payment terms – if you have threatened to add interest, do it. Charge for any debt recovery fees. Make the customer pay for their lateness, and it sends a clear message to them and to others.
10. Stick With It
Finally, don’t just give up, especially on large debts. The legislation and the courts are on your side, so if you have to take it to a judge, do it. Non-payment is against the law, and should be punished as a crime just as any other theft would be.