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Top tips for avoiding bad debt from Credit Management Group UK

18th July, 2016

You can never fully eliminate your risk to bad debt within your business, unless of course your customers pay you up front before any work has been carried out or goods delivered, but you can take all necessary precautions to significantly reduce your risk to bad debt (and improve your cash flow in the process).

Credit check

Carrying out credit checks during your initial talks with a prospective customer is essential to ascertain their full legal entity name and to evidence that they have had past payment issues (i.e. CCJs, first gazette notices, poor payment performance stats).

T&Cs

Your terms and conditions should cover a number of things including: ownership, risk, late payment consequences and outline any credit policies. Essentially your T&Cs should outline the leverage you can rightfully use against a customer for non-payment. If you are under your business’ T&Cs you should ensure you get acceptance, and have clear evidence of that acceptance. If you are trading under your customer’s T&Cs, however, you need to ensure you can deliver as stated in their terms and that you are protected should any issues arise to, don’t be afraid to negotiate. We recommend you contact Aaron and Partners to ensure your T&C’s are appropriate for your business.

Credit policies

Having a credit policy in place can benefit your business in numerous ways, including getting paid quicker. Having aspects such as, setting credit limits for customers, or having a credit hold procedure, will significantly limit the amount of money at risk of becoming bad debt. We must stress, however, that if you have these procedures in place, ensure that you stick to them; knowing when a customer is nearing their limit and letting them know will go a lot further in encouraging positive customer relationships rather than stopping work suddenly for reaching their credit limit with no prior warning.

Effective collection strategy

How effective your collection strategy is, depends on your strategies being appropriate for each of your ‘customer types’, being consistent with customer contact and closing calls effectively. Aspects such as, your invoices going to the correct person, understanding your customers’ payment procedures, and much more will go into your collection strategy, and how well you carry out each of these aspects will affect how quickly you are paid.

Dispute Resolution

Your dispute resolution procedures will tie in closely with your collection strategy; once you are aware of a dispute, either through your sales, front end colleagues or directly from the customer when you are requesting payment, the issue should be dealt with as quickly as possible so that resolution can be found and you can get paid. Dealing with issues quickly will also increase customer satisfaction, as customers will not feel as though they are being valued if their disputes are not responded to quickly. If a customer is only disputing part of an invoice, don’t be afraid to ask for the undisputed balance to be paid.

Legal Action

If you know that your customer has the ability to pay you, but has failed to do so, that is the time to contact Aaron and Partners’ debt collection team.

Credit Management Group UK provides expert commercial credit management solutions to businesses throughout the UK. Their services cover the entire order to cash process and help to protect profits, improve cash flow and reduce risk to bad debt.

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