Businesses keep a certain amount of funding for bad debts or contingencies. However, too much of everything hurts, especially bad debts. Bad debt collection is a problem for small businesses that need majority of their time focusing on the core functions instead of running after the debtors, while debtors prolong the time with brush off emails and calls going straight to voice mails. Debt collection becomes a difficult task for small businesses that have limited time and resources for growth and stability.
There are customers or clients that are not habitually debt defaulters but fail to comply with the agreed dates for genuine reasons. While some customers/clients either go by not paying off at all or paying in small chunks causing trouble (with delayed payments)- in both the cases, your business needs to pool in efforts for debt collection which is both time consuming and frustrating.
How to Avoid Bad Debts?
Bad debts could not be avoided by 100%; however the chances of it could be reduced with some of the tactics by business, such as:
- Keep the due date lists organized and marked on calendar. Also, list the due dates on all the bills for a reminder for both parties.
- Abide by strict payment policies that could include late payment fee and surcharges (include this in your policy so the debtors may know).
- Ask for half of the amount in advance so if the debt is never paid back, it’s only half of the total amount.
- Keep constant contact with the client, via phone, mails or face to face meetings.