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4 steps to effectively reduce bad DEBT

There are many things a business owner has to do to ensure their business succeeds. Offering a quality product or service to earn a profit is one of the most important aspects however, what’s equally important is making sure your customers can pay for the products or services you provide, and on time.

Exposing your business to high risk customers can lead to bad debt and impact your receivables. Remember these D.E.B.T. steps for better credit management.

 

Do your research

The best way to determine a customer’s creditworthiness is to review their credit score and trading habits as outlined in their credit report. It will be brought to your attention if they are a slow or serial non-payer, and give you the confidence to take them on as a customer.

It’s important that new customers provide their correct details when they fill out an application form. It can be difficult to manually process credit applications when important details like their ABN or ACN are illegible due to poor handwriting.

Online credit applications help to eliminate human errors by matching a business’s credentials to adverse information in their credit file. This not only improves your credit application process but also flags customers that pose a potential credit risk.

 

Exercise caution

A business’s positive creditworthiness is not set in stone, so it’s important to keep track of all businesses that you are dealing with, be it new or existing customers.

You can monitor a business for when important events occur, such as when they default on another company, go to court over an unpaid debt or receive a winding up notice. Monitoring your customers will help you stay ahead of bad debt as an automated email alert will provide immediate information on the recent change. This gives you the ability to adjust your terms or cease trading with an account that has become high risk.

 

Be alert when things change

If you’re alerted to a change in a customer’s financial setting, investigate it immediately.  For example, if a customer has defaulted on another company, check in with them to see why this occurred. If they receive a winding up notice, put their account on hold until further notice.

 

Take action when you don’t get paid

When you’ve exhausted all forms of communication of what’s considered to be polite chasing, it’s time to let your slow or non-paying customer know that you take debt seriously.

If your debt is 60 days overdue, you can register a payment default warning other businesses that your customer has failed to pay you. This will be recorded on their credit file for up to five years, and removed only if the debt is settled.

Registering a default against a slow or non-paying customer can often encourage them to settle their debt out of fear of ruining their credit file. Be sure to keep a record of your requests for payment in writing if ever you need to take the case further to a debt collector or court.