How to prevent bad debts and get your money into your bank account…

Bad debts are a real drain on the vitality of any business. If your business is not paid for the work you have done, then you may as well not have done the work in the first place and would have been better off doing other work for paying clients or working on the business itself eg staff relations, health and safety or business development.

Bad debts usually arise due to poor processes at your end to vet potential clients and to ensure you have proper processes in place to get paid. This includes having good terms of trade that set out what work you will do, how much you will charge and when you will be paid. The terms should also include interest on unpaid accounts and full collection costs on any chased up payments. Those two clauses allow you to recover the costs of the delay and the recovery action so you can confidently chase debts without the unrecoverable recovery costs exceeding the debt.

If you have a terms of trade document you must get it accepted as part of the contract. This means giving it to the client before the contractual terms are agreed. It is no use providing it after the contract is formed or even (as sometimes happens) when the invoice is sent. Ensure you have a check list that requires the terms of trade to be provided before you can give credit. Also make sure that if you are collecting client contact information and/or getting a personal guarantee that these are fully filled in and signed in advance. Too often we see blank terms of trade with all of the nice clauses, but no signature from the client or any contact details.

Get trade references and make sure you check out the references by phoning the referee. Are they consistent good payers over several years to other businesses? If not, then what is the chance they will pay you on time? Also check on available credit sites to see if there are any outstanding debts owed by the person or company.

Ensure you know who or what the entity is that you are dealing with. Are they an individual, a company, an incorporated society or a trust? Make sure the contract is in the correct entity’s name and that the appropriate people have signed the contract.

Get payment up front before you do the work. Many businesses require either full or partial payment in advance. This means you have the funds necessary to start the work and can then get further payments as you progress (so long as your terms of trade make provision for that). Alternatively, provide for full payment before you install or release the goods etc to the client. How many shops now days allow customers to take away their groceries without paying at the time? Why should you be a free bank that loans your customers the money they are supposed to be paying you?

If you do have an unpaid debt then act quickly. The sooner you act the more likelihood of being paid. Do not just send reminders of unpaid bills. Get on the phone and keep calling until you speak to the debtor. Do not leave messages for them to call back. Keep on to them. Ask when they will be paying. If they make a promise then get them to repeat it and make a note of the promise and date and sign the note. This avoids later allegations of non-payment due to poor service.

If they do not promise to pay, then immediately get a debt collection professional on to chasing up the debt. Do not delay. Do not accept excuses or you will go to the bottom of the pile and the chances of ever getting paid will diminish even further.




Alan Knowsley