How to avoid bad debts

Here are some tips on the topic how to avoid nasty bad debts:

• It’s very important to have an engagement letter which outlines your price and scope of services fully, make sure this is legally signed before you proceed work. Include a clause which states that you will pass on to the client any additional legal fees incurred because of late payment from them
• Whenever possible make sure you take on a deposit before starting a big job. In particular people who want to quickly start large sums of work, without much consideration of price and contracts should set off alarm bells. That type of person who needs a contract importantly.
• Have a credit limit or say limit your work done for a client of say $1000. Then do no more work when this limit is reached until a payment is made.
• Make sure you devote resources for staff to an established accounts receivable procedure. This should maybe have an escalating procedure such as a friendly reminder, arrears letter, call, and then the last resort send to debt collection agency. You should keep documentation of all notes of promises or discussions with your accounts receivable efforts.
• Some accounting software packages can add on accounts receivable tools which can automate reminder procedures
• make it clear that on your invoice you may charge additional fees if legal action is taken because of late payment
• make sure you have lots of payment options such as a fixed flat payment fee, credit cards, online payment method, direct debit. You may also wish to offer discounts for early payment.
• Do not leave it for months and months without taking any action. Employ staff or outsource an accounts receivable person which can be good to be separated from your salespeople
• do not do business with them again. That is don’t give them a second chance. Expect their payment up front if they come back after slow payment.
• Don’t be too lenient
• Do not underestimate people, usually the ones that will give you trouble are experts at taking you on at slow payment and going to small courts claims courts.

 

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