How do I avoid bad debts?

by | Jan 18, 2023

How do you avoid bad debts? Watch our video to find out.

For many businesses, one of the biggest nightmares is bad debts – doing the work and not getting paid.

This has become an even bigger issue this year. Cash has been very tight for many businesses but, when one can’t pay, the effect ripples from one company to another.

So, what can you do to avoid bad debt? Well, here a few of my top tips.

  1. Check the credit rating of any new customer before doing any work. That’ll at least give you a hint whether they’re likely to pay.
  2. Set clear terms and conditions, and have a contractual agreement with every customer. Getting things clear upfront can save a lot of hassle later.
  3. Invoice promptly and make sure you send it to the correct contact details at your customer. And clearly state the payment terms on each invoice – the due date and your bank details to make it easy for the customer.
  4. Wherever possible, get paid upfront, ie before you supply the goods or the service.
  5. If possible, use direct debit to collect all payments. When you take on a new customer, make them set up the DD as part of your onboarding process. You can then draw down every payment in the future. It’s not perfect and does have a small cost, but it puts you in control.
  6. Fix disputes quickly – if a customer disputes any invoice, clear it up as quickly as possible. Otherwise, they might use it as a reason to delay paying the whole invoice.
  7. Follow up with all of your customers. When the payment date is approaching, send a reminder a few days beforehand. And then, if it passes, chase again. And don’t feel embarrassed about it. I think it’s easy sometimes to feel embarrassed about chasing money. But if you’ve done the work, you deserve to get paid. After all, would you treat your suppliers in that way?

And, if you followed all those steps and you’re still not getting paid, get an expert in to help – call a solicitor or a debt recovery service. Often just a letter from one of those will suddenly make your debt get paid.

So those are some tips to avoid bad debts, which are the nightmare of every business owner.

I hope you found that useful. If you’d like to know any more, please get in touch with us.