With average levels of bad debt rising at small firms, it’s vital that business owners take steps to help minimise the risk of late payments and recover money more quickly should they need to do so.
Some simple measures – or what we call the 4Ps – can make a big difference:
1. Prevention – Put in place preventative measures to avoid bad debt. Ensure all customers are credit checked, especially if you have a customer that you allow to pay for goods/services after they’ve received them. If you have terms and conditions, get them signed and set strict credit limits. This helps to reduce the risk of payment being received late.
2. Persistence – If a customer delays payment, be persistent. Make sure that you follow up a late payment and if a promise to pay is made, follow up again on the date payment was promised. If you do this by phone, send an email afterwards so that you have a record of the conversation in writing.
3. Procedure – Have a clear procedure in place that you follow when a debt is not paid – for example, send the invoice/statement by your customer’s preferred method after you have provided the goods or service, check there are no disputes, and investigate the reason for non- payment. If this is due to financial difficulties, consider a payment proposal plan.
4. Professionalism – Although this may sound like an obvious point for any business or individual, it is important to be professional at all times when dealing with your customers. This eliminates the risk of the debtor using this as an excuse to avoid making payment.