18th November 2013
How to avoid or cope with a bad debt
Like most business owners, I understand the need to avoid bad debt. The time and cost associated with collecting unpaid invoices can be detrimental to your business and its cash flow and in my experience, the longer it is left, the harder it is to collect.
Small business owners should not be afraid to discuss bad debt with their clients. No matter how important our clients are from a sales perspective, their value is only realised once they have paid.
There are a number of practical steps that you can take to reduce the risk of late payments and manage them if they were to arise.
My top ten tips for managing bad debt:
- Be clear about your payment expectations upfront – get clients to sign your terms of trade agreement
- Set up staged payments – to be settled at agreed milestones of the project
- Invoice immediately – and make sure it is error free first time
- Avoid offering long payment terms – 30 days maximum for small businesses
- Establish a set of structured and consistent reminders
- Consider prompt payment discounts – this is usually more attractive than the threat of a penalty
- Offer alternate payment options or instalments – over a 6-12 month basis if the client can’t pay in full
- Meet them in the middle – If they can’t pay the whole debt, how much can they pay?
- Remove yourself from the situation – task the debt collecting to a trusted staff member or friend
- If all else fails, take legal action – this can be done through a debt collecting agency/small claims agency