Prevent bad debt and focus on your business
Starting your business was hard work, but getting paid from customers who aren’t sending payments as promised can be harder. Sound familiar?
Many small-business owners struggle with getting paid, some ignore it and hope the customer will eventually pay, some outsource collections and others try to learn what they can do to prevent bad paying customers from becoming customers in the first place.
The first step to stopping bad debt is awareness — awareness of the problem, awareness of the danger signs and awareness of your blinders and how to change them.The most frequent mistakes business owners make when trying to get paid are:
• Not having customers fill out and sign a credit application at the time of sale Getting incomplete information at the time of the sale Not checking credit or references• Ignoring accounts as they become more and more delinquent – hoping the person will pay
• Not having a credit plan that outlines what steps should be taken when an account becomes past due or a check is returned for insufficient funds Not placing accounts with a collection agency soon enough • Not having documentation to support or “prove” the debt when someone doesn’t pay
• Shipping more products or performing more services when an account is already past due
• Being too lenient with credit when the customer is a “friend” or family member
An ounce of preventionMost business owners I talk to do not realize that bad debt is avoidable.
The first thing you want to do is take pre-emptive action. This begins with having a credit policy and knowing how you will handle these problems before they happen.For example, when you have a new baby you would never dream of taking a road trip without diapers, wipes and a change of clothes. But in business, many people start a new venture with a business plan and maybe a marketing plan but no plan to protect their most important asset – their cash.Your credit policy is the plan that protects your cash, keeps you in business and helps you to be successful. Having a plan will help you stay on track and keep all new customers on track.
Begin by having every customer fill out a credit application and tell them when and how you want to be paid and what will happen if you are not paid on time.
The worst thing you can do is nothing. Business owners often do not want to make the customer mad by calling and asking to be paid. Let’s think about that for a minute – you don’t want to make them mad? They basically stole from you and now are disrespecting you by not paying you. Do you really want customers like that?
Your best defense is to head off bad debt before it happens.Do you find yourself making any of those mistakes? How can you change your policy so that you can avoid bad debt or bad paying customers?If you can start making small changes today and one more each week, you will notice a boost in your bottom line.In the long run, you will notice that you don’t have to contact as many past due customers and chase your money. You will notice that you end up with a better customer base resulting in more sales and more money flowing through your company with less effort.
Michelle Dunn, Plymouth-based author and credit collections expert, can be contacted at MichelleDunn.com and Credit-and-Collections.com.