Protect Your Small Business From Bad Debts By Naz Daud At Isnare.com Ezine Articles

Does your business suffer from bad debts? Sending regular reminders to your customers via statements will definitely help to collect outstanding debts more quickly. Sometimes a quick phone call or email reminder once the debt is overdue by a few days is all you need to receive payment.

In my previous company when my payment collection processes were slack customers recognized this and then chose to pay late. As soon as I improved the collection process, most of the monies due started to come in more promptly.

However, many small business owners face the same problem that I have faced; they are forced to pay their larger suppliers on time or else they incur penalties, whilst their own larger customers take a long time to pay up. Eventually if they are in business for long enough, sooner rather than later, one of their bigger customers is going to go bust owing them a large sum of money.

A good way you can protect your business from this scenario is by taking out debtor insurance. Some companies charge you a tiny fixed percentage for each invoice you raise, whilst other insurance companies will give you annual cover for a one off payment. You might find that you have to pay an excess just like with your car insurance.

For many small businesses their debtor ledger is often their largest biggest asset. They insure their buildings, machinery and contents but they often overlook their debtor ledger. It does make sense to examine this method of protecting your debtor ledger.

Another possible way to protect your business from bad debts is to use an outside company to collect any payments that are overdue. The intervention of a debt collection agency is sometimes all that is required to receive payment.

I have often used a debt collection agency in the past and still continue to do so. We have an arrangement whereby I only paid a fee on collection. This fee was calculated as a percentage of the invoice value. If they failed to collect the debt then there were no fees.

Another benefit about using a debt collection agency is that it freed up more of my time to do business rather then spending quality time chasing poor customers to pay their monies due. In the long term perhaps it is better to stop doing business with poor payers anyway, unless the margins are good.

One strategy that seems to work for many small businesses is to offer an early payment discount if say the invoice is paid within 7 days. I often pay suppliers early that offer this option. Another option is to add a surcharge if a payment is late. I personally do not like doing this as it could lead to losing the customer altogether and might make life even more difficult for a small business that is going through hard times.

Finally if all else fails hand the matter over to your solicitor so that formal proceedings can begin. I tend to use this as my weapon of last resort as once this process has started you can forget about doing business with that customer in the future.

Bad debt can cripple a small business, but if properly handled then it is possible to collect monies sooner and reduce the consequences when a bad debt occurs.

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