If you operate a small commercial business, sooner or later you will encounter a bad debt. A bad debt occurs when you have invoiced a client and recorded the income but then the customer fails to make payment. As well as being very annoying, bad debts can have a severe impact on your cash flow. Below is a guide to 4 steps you can take which will help you to deal with bad debts.

Upfront Payments

The easiest way to prevent bad debts is to require that all of your clients pay for products or services upfront. Doing so will dramatically reduce the risk of a bad debt occurring and can help you to sort out clients who can pay and clients who cannot. However, you should be aware that some of your customers may find the payment window offered by invoicing useful to their business and so may be put off using your company if they are asked to pay upfront. Longstanding customers may also be offended as it may appear that you are calling into question their trustworthiness. To avoid these problems, you could require upfront payments for new customers, transitioning to invoicing them if they prove to be reliable.

Invoices and Reminders

Invoicing practices can vary, depending on the industry you operate in. In some industries such as technology, invoicing happens as soon as an order is raised. However, in others such as the building industry, many weeks or even months can pass before clients are invoiced. You can help to cut down on the number of bad debts you face by being as diligent as you can about sending out invoices. Investing in invoicing software, so you can quickly raise and retrieve invoices can be a great help. Invoicing software can also be set up to send out invoices by email or to print them so they can be posted. If an invoice is not acknowledged within four weeks, you should send out a reminder to encourage the client to pay.

Commercial Debt Collectors

If you have a large volume of bad debts on your books and the customers in question are not responding to their invoice reminders, it may be time to call in a professional commercial debt collection agency. The staff at these organisations are experts at using the law to compel clients to settle their debts. For more information, contact a commercial debt collector today.

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