Debt and credit

Prevention is Better than Cure: Tips to Avoid Bad Debt

If you have worked hard to deliver goods or services to somebody, the least you can expect is for the client to pay you. Unfortunately, there are some unscrupulous clients who will try everything they can to avoid paying. It can be costly trying to recover a debt. If you go to a small claims court, you have to pay costs and, if you lose, you will incur even more expenses. It is better to prevent this from happening in the first place.

​1. Get as much payment in advance as possible

You can either ask for a deposit before starting the work and, ideally, the rest of the payment before delivering the finished goods, or services, to the client. This may not be possible for all of you, so try to get as much payment up front as you can. Tell your client it is to cover your costs, if you feel you need to justify it.

2. Research your client

Trust your gut instincts. If you have suspicions about a particular client, perform a background check. There is a lot of information about companies on the internet. If it is a limited company, you can find a great deal of accounts information on the Companies House website. Ask around to see if anyone else has dealt with the client, or check online forums. Sometimes entering the company name into a search engine is enough to get useful information on a client, especially if they have a bad reputation.

3. Communicate effectively

Make sure your client knows, in advance, what you expect with regards to payment. Give then a contract, before you start the work, and ask them to sign it. Issue the client with an invoice and, if they haven’t responded after a specified period of time, make daily contact with them. Send them reminder emails containing a copy of the original invoice and a deadline for payment. If your client is still unresponsive, warn them that you will be taking further legal action to obtain payment from them.

4. Offer clients a reward for paying early

Some clients will pay early if they know they will get some sort of incentive. Offer them some money off the invoice, or a discount voucher to redeem against any future work.

5. Send proper invoices

If you expect to be paid for work you have done, you will need to have an invoicing system in place. There are some computer packages you can get to help you design invoices, or you can use a spreadsheet, which you can save as a PDF file. The invoice needs to look official. It should contain your name, business address and a list of goods or services provided with the cost for each clearly specified. The client should be able to look at the invoice and know exactly what it is for. If a client isn’t sure what your invoice relates to, they will be reluctant to pay. Handwritten invoices look unprofessional and give clients a reason not to pay. Don’t give them any excuses. You deserve to be paid for a job well done.

6. Give clients a choice of payment options

Every company is different and will have their own preferred methods of paying for goods. Local authorities will have different procedures than a sole trader, for example. Giving people a wide choice of payment options will make it easier for them to pay you. If you do a lot of work online, you should offer PayPal as an option.

An article published courtesy of Safe Collections-your helping hand for managing cash flow.

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