At one time or another, a business usually has to deal with a customer that does not make good on their bill. This is a frustrating situation for all involved, so whenever possible, it is best to try and avoid bad debts. Read on for more information.
Get Credit Information
When you have a new customer, find out as much about them as possible. If necessary, pay to have a credit check performed on them through the Internet. You can also request trade references. Finally, if you have a customer that you are not familiar with, give them a low credit limit to start. After they establish a payment history with you, you can increase the limit.
Have Set Terms and Conditions
Come up with terms and conditions for your business that are direct and simple to understand. Tell all your customers about your terms and conditions, and ask them to read through and accept them. Make sure you put the terms and conditions up on your website, and you should automatically send a copy with each of your invoices. Somewhere in your document, state that the products are yours until you have received compensation. Also, make sure that customers realize that they need to alert you to a delivery issue as soon as possible. Finally, tell customers that you can charge interest if a payment does not arrive on time (it is up to your discretion as to whether you do this or not).
Your invoices need to go out on a regular basis so that you can begin the process of collecting payment if it does not come in. If you are organized and active when it comes to going after debts that are owed to you, you are much less likely to have outstanding balances.
You can also check with a customer to find out what is most convenient for them when it comes to billing. For example, do they receive a direct deposit on the 10th of every month? Send out your invoice to coincide with when they get paid.
Get In Touch
When a customer misses a payment, get in touch with him or her as soon as possible. Letters are simply not good enough; speak to the person in question and explain that you need the payment as soon as possible. It is best to be polite and keep your cool; you may still do business with this person in the future.
Take Care Of Problems
If the customer has an issue with the product they purchase, resolve the situation as soon as possible. The customer is unlikely to give you your money if he or she is unhappy with what they purchased.
If someone consistently does not pay on time, make changes. For example, you may decide not to extend them credit any longer. You could also make them pay more. Check out this blog from Harnham on credit risk.
Have A Plan
If your customer has not paid you, and quite a bit of time has gone by, make sure you have a plan for how to handle the situation. Small amounts of money may not be worth it to pursue. You could make sure that the customer does not get any more credit extended to him until he pays his outstanding debt. You could also try and set up a payment plan with the customer or go through a mediation company.
Speak with your lawyer if all else fails. Sometimes, a letter from a legal representative is all it takes to get the situation resolved.
*Information from Small Business Update 106 – October 2012