Avoid Bad Debt with Better Credit Management
What is bad debt?
Bad debt is credit owed but has been deemed uncollectible, in other words the cash is lost and must be written off. Not good for anyone!
All businesses should seek to avoid bad debt but unfortunately, it’s a risk that businesses face when granting credit to customers. The good news though is this risk can be minimised with good credit management.
Here are some steps you can start taking today for a better credit management process to avoid bad debt:
1. Credit check new and existing customers
The very first thing you should do with new customers is credit check them. We can’t stress how important this step is for good credit management.
An effective credit check will give you some insight into a customer’s typical payment behaviour, whether they have a habit of paying invoices late, how risky giving credit will be to your business and what a suitable credit limit would be.
It’s also important to credit check your existing customers. Offering credit and setting terms for customers isn’t a “set it and forget it” process. Credit scores and reports are dynamic as they reflect changes in a customer’s payment behaviour.
Great credit managers use data from multiple sources to give a thorough credit check as only relying on one data provider could leave you vulnerable.
Check-it provides company business reports and monitoring from independent reliable sources like Creditsafe, Companies House, The Gazette and Unsecured Creditors all inside the Know-it platform in one click. By pulling all this data into one easy to use interface it allows businesses to make better informed business decisions, react quickly to changes by monitoring your customer’s credit reports and identify good and risky payers before you do business with them.
2. Regularly check sales ledger
Because credit scores and reports can change monthly it’s important to have a good understanding of your sales leger and constantly check existing customers to make sure there’s no cause for concern over outstanding credit and to mitigate risk when reviewing credit terms for a new order.
A regular review of your sales ledger will have a dramatic impact on your credit management processes and regularly checking your sales leger is just as important as credit checking a new customer.
Check-it will notify you of any administrations, liquidations and potential fraudulent behaviour of any company on your ledger to mitigate any credit risks that could potentially harm your business. Know-it seamlessly integrates with all leading accountancy packages so you can easily connect your sales ledger to the platform and have a complete overview of your credit management processes.
3. Set processes for chasing and collecting payment
Good credit management ensures businesses know exactly when invoices are due and when payments are expected to land. Businesses with the best credit control processes have at least one person, sometimes whole teams, responsible for monitoring when invoices were sent and when they’re expected to be paid.
A process should be in place for sending invoice reminders and chasing payments in the event of invoices not being paid on time. This process should include what communications should be sent; phone calls, letters and emails and when they should be sent. Businesses that don’t have this process set up always struggle to recoup what they’re owed as they’re too disorganised.
Chase-it is our payment chasing and scheduling tool that lets you automate your payment chasing process. With Chase-it you can schedule payment reminder emails, letters and text messages using our fully customisable templates and automatically send them when you chose to. The beauty of Chase-it is that it synchronises with your sales ledger so that you are always kept up to date with any outstanding invoices that you need to chase.
By fully automating your payment chasing process with your fully customisable templates you’ll have more time to focus on growing your business.
Unfortunately, not all invoices will be paid on time. In really bad cases it can feel as though you’re banging your head against a wall trying to collect payment so a helping hand can make all the difference in ensuring that you get paid before the outstanding credit becomes bad debt.
Collect-it gives you an instant quote to collect your overdue, unpaid invoices delivered in partnership with commercial debt recovery experts at Darcey Quigley. Collect-it builds your case using data and your customer’s credit history from Check-it and Chase-it and you’ll see real-time case updates on your Know-it dashboard with instant notification when a payment has been made.
Know-it is a revolutionary platform that enables you to effectively manage all your credit control, mitigate risk and better understand your customers. Simplify your credit management processes with Know-it. Get 30-days free now!
Declan is our content writer here at Know-it!
He is committed to educating readers on the importance of credit control and how technology can help streamline processes for SMEs whilst providing actionable help on how businesses can mitigate credit risk, reduce debtor days and boost their cashflow.
Connect with me on LinkedIn!