Five Steps to take to ensure you don’t deal with a bad debtor

Credit limits If you are giving credit, it is vital to know who your customers are and to perform effective credit checks and continuously monitor credit arrangements. Financial situations can change rapidly, so it is important that businesses regularly review the credit limits of their customers and watch out for signs that they could pay […]

  1. Credit limits
    If you are giving credit, it is vital to know who your customers are and to perform effective credit checks and continuously monitor credit arrangements.
    Financial situations can change rapidly, so it is important that businesses regularly review the credit limits of their customers and watch out for signs that they could pay late or not at all due to financial difficulties.
  2. Terms and Conditions
    Be clear about payment terms from the outset and make sure customers read and sign up to your terms and conditions. These should cover what will happen if a dispute arises, the penalties for a late payment, including the rate of interest to be charged, and the right to recover debt-collection and legal costs.
    To be enforceable, these should be included on a credit application form rather than on the back of invoices, which is too late in the transaction to be legally binding.
  3. Speed
    When collecting payment, speed is of the essence. Small businesses are often so busy carrying out day-to-day operations that they fail to keep on top of debts and feel unable to enforce payments.
    Always collect payment immediately, if possible. Invoices should be sent as soon as possible and it is essential to keep on top of paperwork.
    If you do have to issue an invoice by post, follow up within two weeks by statement, stating payment is due within seven days. A phone call should swiftly follow.
  4. Statutory Demands
    In respect of non-limited businesses, partnerships and sole traders, a business could consider the personal delivery of a statutory demand. This gives the debtor 21 days to pay in full or face individual bankruptcy proceedings.
  5. Debt Recovery AgenciesĀ 
    The use of an outside debt recovery vehicle can be cost and time effective. A debt collection agency can give advice and guidance with the drafting of credit application forms, terms and conditions, personal guarantees and insolvency notices.
    Dedicated debt collection professionals can ensure every avenue is explored to recover debts and have access to a variety of investigation tools and credit checking facilities to trace debtors and evaluate their ability to pay.