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Preventing Bad Debt

Bad debt refers to an unpaid invoice that will not be collected. The customer is unable to pay for the invoice, leaving your business to write off the bad debt.

If you have too much bad debt, your business will quickly decline.

Here are a few measures to help you prevent bad debt:

Clear Documentation

One of the most important elements of invoices is making sure that all parties are made fully aware of the terms and conditions and completely understand the process. Establish a firm deadline and relevant penalties so that invoice recipients understand what is expected from them. When the customers have a clear understanding of all terms and conditions, they are more likely to pay you on time.

Send Invoices Promptly

Make sure you send your invoices immediately after delivering your products or services. Once payment is overdue, make sure that you have the systems and processes in place that will ensure you can recover it effectively. This could range from picking up the phone to working with a debt collection company.

Be Aggressive

Chasing overdue payments immediately can show the importance that you place on your invoices to your customers. Using multiple forms of contact can ensure that all avenues of communication are covered and help you find out which method is the most effective. Keeping in contact, and always emphasizing the importance of the invoice can lower your risk of bad debt.

Analyze Your Customers

Before extending credit to new customers, you should assess their creditworthiness.

If you know your customer’s payment schedule, you can align the dispatch of invoices with your client’s payment schedule and increase your chances of being paid without any issues.

Sometimes, your customer may have a genuine reason for not paying an invoice. In these cases, it can be good to reach out to understand their situation and accommodate their issues if needed. Each customer is a unique case, and good customer relationships can help facilitate timely payments.

Resolve Disputes Quickly

Customers may delay payment because of a dispute, usually pertaining to quality of products or services delivered. You should seek to resolve disputes as soon as possible, and preemptively removing dispute reasons can help you receive payment.

However, there will also be customers that will refuse payment simply to get out of paying. In these cases, consider hiring a collections agency or taking the dispute to a small claims court. Make sure to record all necessary documentation during the invoicing process as a safeguard against disputes.

Cut Off

If a customer has been paying late or not paying at all, consider penalizing them. Charging higher prices, enforcing late fees, or outright cutting the customer off from your services may ultimately be the most helpful to your long-term business success.

Consider Invoice Factoring

Factoring invoices allows companies to sell their unpaid invoices for immediate advance cash. You do not have to worry about chasing customers for late invoice payments, quickly boost your cash flow, and can reduce the risk of bad debt.

Accel Business Funding has provided invoice factoring and has funded many businesses for more than $380 million. When banks say NO, we say YES to funding in 24 hours!


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