Bad debts are a result of unpaid and delinquent credit sales extended to customers. They are a huge pain because not only have they locked in cash within the invoices for a significant period of time but they too provided losses and zero profits. Truly, they are one of an entrepreneur’s worst nightmares. So we’ve taken it upon ourselves to ask our team of freelance accountants regarding the different means to reduce these bad debts and here is what they’ve got to say.
Draw up clear and effective credit terms. Call in the pros for sound advice on the matter too. It is important to devise clear procedures and rules at the onset not only for customers to abide by but also for the business to be reminded of.
Screen out the bad paying customers. Extending credit to everyone is plain suicide. You must be careful about delinquent and bad paying customers and make sure to never allow a credit sale transaction with them. To do this, perform some screening and enforce certain requirements.
Keep customer information updated. You have to send in invoices to facilitate collection and you cannot achieve this if you have the wrong names, contact details and addresses.
See to it that you send out the invoices on time. Tardiness on your part can also been tardiness on the part of the customer. You have to initiate punctuality and send the necessary documents and reminders the moment they become due. In fact, the earlier it is done then the better.
Don’t hesitate to call in. There will be cases where customers do not deliberately intend to miss out on their obligations but rather forget or unconsciously brush it aside for some reason. Call them up, send a reminder and clarify things. This is why you have a credit and collection department in the first place.
Impose penalties for lapses and rewards for promptness. Include in your terms interest penalties and fees for delayed payments and other lapses on the erring customer and open up discounts for those that are prompt and good paying. This encourages good conduct and discourages the bad. Ever heard of the rewards system?
Consider factoring off your invoices. If worse comes to worse or if there is god reason to fear a delay in the payment from a customers or even a delinquent one, you may want to take on a nonrecourse factoring arrangements says freelance accountants. They not only help reduce bad debts but they too hasten up collections.
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