The only good approach to bad debt is to avoid it – not ‘at all costs’, but at costs that are worth incurring, in order to minimise your exposure to debtor risk.
As always, we would advise treating this as a holistic issue, so you are minimising your risk from the first instance, right through to the point at which you receive payment.
Have clear terms and conditions in place for payment, and make sure new customers clearly agree to these, allowing you to enforce them later if non-payment occurs.
Run background credit checks on anyone you are not sure about, and don’t be afraid to change your decision based on the information you receive back from these.
You might not have to lose the customer completely, but it could allow you to put a sensible credit limit in place, so if the customer fails to pay, you are not excessively out of pocket.
Ensure you have complete and accurate contact details for your client – especially if your invoice needs to be sent elsewhere to be processed on time.
It may be worth checking in advance whether the client makes their payments on the same date each month, so you can make sure your invoice is received in plenty of time for your money to go out on this date.
If a payment goes overdue, put a phone call through to the client – it may be an oversight or a misunderstanding, and a friendly but professional call can resolve many such situations in a matter of minutes.
Any disputes should be resolved quickly if possible, especially if the customer has a legitimate reason to reject the goods or services you have provided; ongoing arguments can make it very hard to enforce payment.
Regular late payers may still not need a total ban; you could ask them to pay upfront, put down a deposit, or simply enforce a strict limit on the amount of credit they can incur.
Small debts might not be worth chasing, and for the sake of your business you need to be prepared to lose when it is economically sensible to do so.
For larger debts, have a solicitor or debt recovery specialist on your side, and call them in if you think you are unable to recover the debt yourself, as they will know the best way to proceed.