Nine steps to minimise bad debts

There are several things a business can do to minimise the likelihood of bad debts. The following is a good starting point:

  1. Recruit a great credit controller.
  2. Ensure there is regular friendly contact between your credit controller and the purchase ledger department of all key customers. Be willing to use whatever method gets the best response from the customer – 8.30am phone calls / 5.30pm phone calls / text messages / emails / instant messaging, or a combination. Above all, keep the channels open.
  3. Ensure your credit controller knows and records the details of all key customer staff – purchasing department, purchase ledger administrators, their boss/colleagues, their bank signatories.
  4. Ensure your credit controller understands your own sales and delivery process so they know the key decision points where pressure could be applied to a slow-paying customer.
  5. If you have a sales commission plan, consider linking at least some of the commission payment to the actual payment from your customer. This should get your credit controller and your sales people working together.
  6. Make sure the aging reports are useful – up to date, perhaps just major balances, perhaps sorted by size.
  7. When getting heavy, always consider the possibility of further business from that customer once payments are back on track. Don’t write off the relationship too soon. Sometimes they may respect you for being firm and come back to you, as long as they see that you have been upfront and fair. You may not grant them the same credit limit for a while.
  8. When a customer is in trouble, consider a payment plan. There is still risk, but it’s easier to tell if the customer is genuine or whether they have no intention of paying.
  9. And don’t forget the basics which include;
    • careful granting of credit,
    • prompt posting of transactions,
    • regular reconciliation of balances,
    • review of aging reports,
    • review all credit limits on a regular basis,
    • remove credit limits where there have been no transactions in, say, the last 6 months,
    • ensure there are no problems with the invoice itself.

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