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1. Do you have a written business plan?2. Do you produce monthly management accounts?                  3. Are they available within 10 days of the month end?

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10 tips for avoiding bad debts                                        Article Index

Bad debts can be a serious hindrance to your cash flow and profitability. Sometimes this can be crucial to the success or failure of your business.

Here are some tips for preventing a build-up of bad debts:

1.      Obtain a credit reference on the organisation that you intend to trade with 

2.      Avoid doing business with companies whose credit rating is poor 

3.      Ensure that the other company knows your payment terms at the outset 

4.      Invoice at the earliest opportunity 

5.      State the payment terms clearly on your invoice 

6.      If payment is not received by the due date, send a reminder as soon as possible, and certainly no longer than one week after the due date. It is good practice to have a policy to chase the debt after a fixed number of days following the due date 

7.      If there is still no response, chase up the debt by telephone. This will enable you to determine whether there are any queries on the invoice and, if not, to discuss a date for the settlement 

8.      Write to confirm the agreed settlement date and send by email, fax or post

9.      State clearly that the matter will be referred (after the agreed extended period) to either:

        A debt collection agency

        A firm of solicitors, or

        The county court small claims department

10. If the debt is still due after this, keep your word and take action

Make it easy for your customer to pay promptly

There is no law that says you should send out statements and invoices only once a month. Send invoices at the time of delivery, and make sure they include a detailed breakdown of the charges. This will help eliminate delays when payment becomes due.             

Include a stamped, addressed envelope with the statement. Research suggests customers pay faster when you do. And have an appropriate message printed on the back of the envelope.

Remember, everything is marketing even invoices and statements!


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Copyright 2010, The Finance Function Ltd. All rights reserved. Last Updated 12 January 2010