Relationships with your Debtors – Tips on avoiding bad debts – Make it hard to owe you money

Posted by Luke Mitchell on 22 September 2016
Relationships with your Debtors – Tips on avoiding bad debts – Make it hard to owe you money

Our previous blogs in this series have looked at the importance of establishing who it is that you are doing business with and ensuring that your customers are reputable and likely to pay.

Our next tip focuses on billing practices and making it as hard as possible for your customers to owe you money. Good billing and debtor management practices can go a long way to ensuring that you are paid within your credit terms. Avoiding aged debtors is a critically important part of minimising your exposure to bad debts – the older the debt gets, the more likely it is that it will not be paid.

You can minimise your exposure to aged debtors through the following steps:

  • invoice as often as is practicable – it is likely that your customers will find a series of smaller debts far easier to manage than they will one large debt. The easier it is for your customers to manage their payments to you, the more likely it is that you will receive those payments in full;

  • stick to your credit terms – if your invoices become overdue, follow them up as quickly as possible;

  • automate your debtor management system – even if you cant afford a fancy accounting system at least create template follow ups that are easier to cut and paste into an email. You can stage your follows up to start off as gentle, friendly reminders and gradually increase their formality;

  • make it as easy as possible for debtors to pay you – the more payments options you offer, the more likely it is that you will be paid;

  • be strict with payment arrangements – if you agree to a payment arrangement with a debtor, get it in writing and make sure that you enforce its terms;

  • don’t let your business get into a deeper hole – if you start to sense that a debtor is becoming a problem – you’re probably right. Consider moving the debtor to cash on delivery terms and/or ceasing supply until the debt has been cleared.

The most important thing is that you pick and stick – create a client engagement and debtor management process that works for your business and stick to it. You can’t expect debtors to abide by your payment terms if you are not prepared to enforce them.

We specialise in providing clarity and confidence to business operators in their legal relationships with their customers. If bad debts are a problem for your business – or if you want to take steps to best protect your business from a bad debt crisis -– contact us and benefit from our knowledge and experience.