Bad debts can seriously impact cashflow and profitability.
Here are some tips for avoiding and dealing with them.
1. Improve invoicing and debt management
This might involve tightening up payment terms on your invoices, or you could offer incentives such as early payment discounts.
2. Use care offering trade credit
Don’t give credit too readily, and certainly not without a thorough background check. This can be done by contacting some of the client’s other creditors, and through the ASIC Business Checks App. You may also be able to get credit history information on the business through credit report companies.
3. Take steps to recover debts
Sending reminders and making calls should be the first step for recovering overdue invoices. If the client is having difficulty paying, consider coming to an arrangement where they can pay off the debt in instalments. If this fails, the next step might be to contact a debt recovery agency. The Australian Small Business Ombudsman has more information on recovering unpaid invoices.
4. Trade credit insurance
Bad debts can sometimes happen despite, your best efforts. Trade credit insurance provides financial protection for these situations.
Talk to your broker to find out more.