Avoiding Bad Debts…
Unpaid invoices can have adverse impacts on businesses, particularly those with insufficient or low capital which are more dependent on dynamic cashflow. It does not help that a majority of small business to business transactions are completed on a credit basis, and there appears to be an expectation that credit facilities be available when dealing with commercial agreements. This can leave businesses exposed and have higher than desired accounts receivable on their books.
Bad debt risk – 10 tips to decrease exposure
- ensure you have a written contract in place which clearly sets out your terms and conditions;
- when a client applies for a credit line, conduct a credit check, and peruse their historical financial position (if any) relating to prior financial agreements;
- set conservative credit limits. To avoid over exposure and bad debts of quantity, restrict the credit limit;
- ensure clients applying for business credit sign and acknowledge the company’s terms and conditions including applicable interest charges;
- do not delay sending invoices. When a client receives goods and services on credit ensure they receive their invoice shortly thereafter;
- set invoice due dates and follow up your clients as soon as the invoice becomes overdue. Also, remain diligent with following up your client in a repetitive and consistent manner regarding any outstanding invoices;
- ensure that you have multiple ways of contacting your client including emails, phone numbers and postal addresses in case they stop acknowledging or responding to your contact;
- try to avoid ‘monthly pay run’ responses from companies. Some companies will only process payments to providers of goods and services on one day a month. If this is not within your terms and conditions, make sure you reiterate this to them;
- seek advice about what insurances you can have in place to minimise bad debts applicable to your business; and
- if clients have failed or delayed in repaying credit amounts do not allow them to overdraw on your credit facility and consider returning them to ‘cash on demand’ status.
Preventative measures are better than remedies for bad debts. If recovery action becomes necessary, this can be costly.
I hold bad debts… I need assistance
If you have outstanding bad debts and you need assistance contact Klein Legal today. Klein Legal are experts in debt recovery.
This is general information only and does not constitute legal advice.