Let's Talk about Bad Debt - How you can integrate bad debt prevention into your business

Updated: 15 April 2019

Even when your business is thriving, it can take just a few unpaid invoices to create cashflow issues. That’s why we want to give you the best chance of being paid by your customers.

There are many businesses with customers who - for one reason or another – don’t pay their invoices on time. But, there are some preventative measures you can take. By integrating bad debt prevention into your customer journey, you'll give your business the best chance of success.

The earlier you take action, the more likely you are to preventing funding gaps or ultimately, writing off bad debt. So, let’s talk about the things you can do to reduce the likelihood of your overdue invoices turning into bad debts.

Here are some top tips to make bad debt prevention a key focus in your business

Before you agree to work with any new customers make sure you:

  • Try to take on a good spread of customers across a variety of sectors and industries. By diversifying your customer base, you’ll stand a much better chance of reducing your exposure to bad debt.
  • Stick to your basic requirements and avoid taking on anyone who fails to meet these. Whenever you’re given little contact information, potential customers are hard to reach or they fail to sign a contract, it could be a sign that they’ll be more hesitant to pay.
  • Have clear payment terms that you consistently stick to, let your customers know about any late payment charges to save disputes later.
  • Get to know potential customers first and run credit checks before offering credit terms and credit limits. A simple credit check online could save valuable time, and money, in the future.
  • Determine the highest tendency for debt by looking at the write-offs you’ve had to make over the last three to five years, allowing you to identify what bad debtors look like and the root causes for high bad debt.

Once you decided to work with a customer:

  • Group them into new, current and arrears by value and credit risk, varying your approach in how you deal with them when you need to.
  • Invoice your customers accurately and on time, sending reminders where you need to. Using technology rather than manual processes will give you a record of your invoices and help you to review your financial position more easily.
  • Keep track of customers payments, because if you don't know who owes you money you don’t know what’s owed to you.
  • Use your customer payment data to understand and predict payment patterns and update your customers risk profiles when you need to take action if you’ve not been paid.
  • Have a systematic approach to credit control across the customer journey to ensure payments are received on time and to help to reduce the likelihood of overdue payment.

You can never guarantee that every single customer will pay a bill on time, but with these helpful tips on bad debt prevention you can give your business the best change of keeping late or missed payments to a minimum.