Even the tightest accounts department will admit that they have at least some late payments outstanding. But how can we avoid bad debt altogether?
Firstly, read AccountAssyst’s ‘The Seven Deadly Sins of Credit Management and how you can avoid them!’, and then then download the full version here.
1. If you don’t know who you’re dealing with…
If you’re chasing that overdue debt but making little progress, knowing the exact legal entity of your debtor puts you in better standing when it comes to the courts.
2. Terms and Conditions are absent or barely there!
Scores of businesses have inadequate terms and conditions, or even none at all. However, robust terms and conditions are imperative, particularly if a relationship turns sour and a customer questions an order.
3. Sloppy Paperwork and Lax Administration
It’s unlikely that you’ll be consistently paid on time and sometimes you might not even get paid at all. Sloppy and lax paperwork can of course contribute to this predicament.
4: Complacency. They have always paid us before…
Perhaps you’ve built up a degree of trust in your customer. However, just because you have a good relationship with your customer, that’s no reason to ignore the warning signs of that may come your way.
5. Failing to chase overdue monies promptly and regularly
A robust and rigid credit control policy must be in place. Start by setting it out in bullet point format on a single sheet of paper.
6. Be prepared to turn down potential write-offs
It can be tough in credit management when you appear to be fighting against the sales team. It’s even tougher when in some organisations the sales team comprises the directors, owners and shareholders themselves! To quote the oft repeated phrase that focuses everyone on to the same goal “a sale is not a sale until it is paid for.”
7. Knowing your customer – before, during and after
Managing your relationship with your customer from the start of your dealings with them can help reduce write offs and bad debts. Successful businesses that survive the tough times and thrive in the good times have robust processes. They will start with a prospect check before beating a sales path to the door of their new prospective customer.