Do you have a bad debt?

Generally, the most common reason business relationships turn sour is due to bad debts.

No business owner is wearing rose coloured glasses when it comes to debt, believing that they will not have to deal with bad debts, unfortunately there are times when as a business owner you are faced with an existing customer, who has always been a good payer starts falling behind in payments.

Being put in a difficult position you have to decide how to handle this, on one hand you have a customer with a good history with payments and a sound relationship, but on the other you have a business to run and non-payments can impact cash flow and effect other areas of your business.

To understand why your clients are not making payments you need to find out what is happening.  The potential of a customer to bring you more or repeat business in the future means understanding the situation and planning accordingly to protect the relationship of business owner and customer.

As a first step it is important to ensure the outstanding debt is classed as a bad debt, considering non-payment an issue should begin once failure of one full payment schedule is passed or if you are aware of any specific circumstances that would impact paying.

You should then consider your terms of credit, and your clients pervious payment patterns, for example you invoice on the 1st of the month but your client pays the 30th of the month so it is vital you proceed based on their unique situation.

Instead of leaving this to your credit control personal it is best practice to teat a good customer on a more personal level to find a solution that helps both parties.

There could be any number of reasons why your customer has not settled their invoice(s), the only way you will be able to understand their reasons behind the slow payments and find a workable solution is by talking to them.

In most cases customers will who are not paying are experiencing temporary cash-flow problems, it is imperative to define how long “temporary” is, and an agreement can be reached of when the debt will be settled.

As a business owner you will need to consider if you don’t want to lose a good customer and continue to do business with someone who is experiencing financial issues and could struggle with future financial obligations or if it would be better for your business to let the customer go so you are not faced with mounting bad debts from that customer.

If all attempts have been unsuccessful in trying to reach a resolution and a way forward hasn’t been agreed, or the customer has defaulted on his payment obligations mulitable times then the situation should be seen as something more serious and you should think carefully about the viability of the relationships long-term impacts for your business.

It is at this point you will need to look at what your options are for getting your debts settled.  Of course, you can try to collect the debt yourself, continuing to issue reminder invoices, phone calls and so on, but it is more effective at a certain level of debt, to use a professional debt collection agency.

A debt collection agency has the time, experience, know-how and technology to get you paid faster, especially if legal recourse is required to recover the debt.   The sole focus of a debt collection agency is collecting debts, they understand the process including all the specific laws and regulations specific to each state or territory.

Depending on the outstanding debt amount and how often you have non paying customers, you need to weigh up the financial benefits and customer relationships of outsourcing debt recovery or simply writing the debt off.

If the outstanding debt is relatively small engaging a professional service to act on your behalf may not make sense, you should consider your options carefully and conduct your due diligence very thoroughly.