Managing your business someday is undoubtedly a dream for many to achieve and an already achieved dream to maintain.
There can be good and bad days while running a business, but the way you deal with these times is what would define you.
It can be a daunting task to establish a business, and an even more challenging one to steer clear of all bad debts on the way. These petty debts can soon be the downfall of your potential empire.
Tips To Avoid Bad Debts
You can help your business thrive if you follow the right approach and the correct steps as mentioned, you can prevent your business from plummeting into bad debts if at all.
Here are 5 tips that you need to follow never to catch a bad debt –
- Pick Your Clients Wisely
Initially, it might sound tempting to pick any client that approaches you as a more extensive client base could help you quickly climb up the ranks.
However, it can cause low morale, less customer satisfaction, and reduction in client numbers as you won’t be able to cater to everyone, leading to something more on the contrary.
So picking your clients intricately is paramount. Collaborate closely with your sales department to create just the profile you need from a client, and look for those specific qualities in clients that approach you.
After selecting your client, conduct credit reports/searches on the company as-well-as its directors. Look up their websites and social media accounts.
Consult their clients and inquire them about your potential clients. Keep an eye out for red flags in their finance department and learn all you can about their financial health.
- Establish Payment Terms and Penalties
You need to set clear and distinct payment terms for your clients. You must structure your payment terms to encourage prompt payments.
You also need to ensure that your terms of trade depict the time after which you would charge interest on overdue amounts as-well-as the rate of interest.
Make your client wary that they could also be charged a recovery fee and legal fees sustained in recovering the debt.
Your terms of trade can only be applicable if the customers sign their acceptance before supplying them any credit.
You can also email your customers about the terms at the commencement of each year as a reminder.
Khatabook is an India based company that allows you to maintain your personal as well as business ledgers.
Their platform provides gst customer care so you never have to worry about GST forms being misfiled or wherever you would require assistance.
- Establish Control
After choosing clients wisely, conducting financial background research, and establishing payment terms, you now need to establish tight credit controls.
Tight credit control establishment would go a long way in avoiding bad debt. This way, you can avoid or limit your odds of landing into bad debts by following these steps –
- Intricately go through all business and reference checks before offering credit to new clients.
- Make them agree to personal guarantees and sign all credit application forms.
- Always own credit control documents.
- Set reasonable yet fair credit limits.
- Payment conditions must be clear in your terms of the trade agreement.
Before you make any deals with your client, make sure to have all of these checked out. It would be an absolute disaster to do business with those who don’t comply with your terms.
- Ask Money Upfront
Ask for money upfront before you decide to provide any goods or services if you genuinely are confident about what you are offering. Numerous clients under-value their products and services with the thought of upsetting their customers.
This would deliver a serious message to your customers that you make no relaxations or exceptions about your services and payment.
Be persistent on upfront payment for any products being delivered. Build and tweak your system to comply with this idea.
You can download the Khatabook app online to find assistance with GST forms and regulations. The cgst full form is Central Goods and Services Tax, whose information is all provided on their platform.
- Comply With Your Terms
You need to get serious and stop supplying customers who don’t pay their accounts on time. Establish it clearly that they require your goods and services so you can be paid swiftly.
This might lead to a few unsatisfactory customers, but it also mitigates the risk of being a victim to bad debt.
Also, stop supplying products to customers in a plethora of their credit limit. This would provide you with the opportunity to reevaluate the creditworthiness of your customer before elevating your debt exposure.
If you claim that you would charge interest as-well-as penalties for non-payment, then do not be lenient but instead, charge them. Make sure that your customer knows about the addition of such charges.
It is essential that while running a business, you be wary of fraud customers or merely those who are lazy in paying you correctly.
While you might not want to say a no to many clients, it would be the best course of action to consider if their profile doesn’t match with what you had anticipated.
It is also essential to keep track of all payments and ensure that your customers pay on time to avoid falling into bad debts.