Avoiding Bad Debt
Bad debt can be crippling for small business and we need to be realistic that it could happen to us. With this in mind we will explore strategies for avoiding the problem.
PRevention
As ever prevention is better than cure and there is a lot we can put in place to prevent bad debt.
Doing the basics well
A lot of bad debt can be avoided with reliable basics: invoicing promptly, providing clear payment terms and easy means of payment, chasing late payments quickly. Xero itself and its Add-ons provide a plethora of tools to save us time.
We also highly recommend building strong relations with customers and where appropriate accounts departments. Communication and relationships can make all the difference with getting paid.
Where relations break down, it is important, however, that sanctions are communicated and enforced. We do not want to build a reputation as a soft touch.
Credit Checks
Credit checks are relatively inexpensive and offered by a number of platforms such as Experian on a subscription basis. Before we open up significant lines of credit we might consider running credit checks on our potential customers.
For £30 Co- can also provide a credit check report for clients.
If we want to take things further we can systemetise and even automate credit checks and limits with Xero and Add-ons such as Satago and Know-it.
Direct Debit
In recent times apps such as GoCardless, EasyCollect and uCollect have brought affordable Direct Debit to small business owners leaving them in much greater control of their unpaid invoices.
CURE
Insurance
Not all invoices can be insured, but many can. A simple Google search will give a list of providers. The one we believe to be most tailored to small business is Bibby Financial Services.
Small Claims Court
When you are sure relations can be severed, the Small Claims Court is an extremely useful tool. Applications are simple and the fees are affordable. When threatening an application it is worth reminding customers of the impact on their credit rating should they lose. Often this rather than the claim is a motivator to pay up.
Debt Collection
Again a simple internet search will offer up numerous debt collection services. Mostly collections are on a ‘no-win-no-fee’ basis with a % of any collection going to the service provider.