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How can companies avoid bad debt?

Bad debtors are the thorn in the side of every business. While unfortunately, every business will face a bad debtor at some point, in my experience, there are number of preventative steps you can take from the outset that will help put you in the best position possible when a bad debtor arises.

To avoid bad debtors, companies must be vigilant when taking on clients

Companies must be vigilant when taking on clients

1) Get information on who will be responsible for your fees from the outset

You should find out who you are dealing with. Are they:-
i) A limited company – who are the directors?
ii) A partnership – who are the partners?
iii) A sole trader?

You should obtain the full name of your client, together with their contact details, including a postal address and all other relevant contact information. Having this information at your fingertips is extremely beneficial should you have to pursue a debtor for payment.

2) Provide your terms and conditions

Terms and Conditions are important for a whole number of reasons, not least because within them you can stipulate what your payment terms are. For example, if you require payment of your invoices to be made within 14 days, then the terms should make reference to that. In the event payment is not made in accordance with your terms, you may wish to reserve your right to seek interest on the outstanding sum. This often acts as an incentive for payment to be made, with the debtor wishing to avoid their liability increasing.

3) Check your client’s financial position

There are a number of companies who offer credit check services. This is a very helpful tool to regularly monitor your client’s financial position. If they are in financial difficulties the earlier you know about that the better. This can avoid a situation whereby further invoices are being raised and going unpaid.

4) Have an effective credit control procedure
An effective system of chasing unpaid invoices is vital. Don’t be afraid to ask for payment. Regular chasing is a very successful way of ensuring your invoice gets paid, especially if you are dealing with a debtor who has a number of creditors. Make sure your voice is heard and not lost in the crowd!

If you are a business in Hertfordshire or London and are struggling with bad debtors, I can help. Feel free to contact myself, Gemma Newing, or view our commercial debt recovery pages.

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