Ask Danny: Reducing bad debts and getting customers to pay on time

“How can I reduce bad debts and get people to pay me quicker?”

- D R, Cirencester

I believe that two attitudes should prevail with respect to payments: The first is that it is not good and worthwhile business until it is paid for; and the second is that once the invoice has been issued and the job is signed off, it’s MY money and I want it in MY bank account.

Actually another significant factor is that so many people in business seem reluctant to actually ASK for the money they are owed, especially where there is a belief that to ask for outstanding and even overdue debts will offend the customer. So what?

Using trade and commercial customers as the example – the rules with homeowners are different – alarms should sound the moment an invoice goes beyond the agreed terms. Of course it may be that a payment pattern from an established customer might involve a wait of a few days as the payment process is triggered, but for others, act as soon as the debt becomes due.

Use measured, professional language to remind the customer the payment is due, ask when payment may be expected. If that payment is not made by the date they stated, then follow it up again…politely, firmly.

If payment is further delayed the alarm bells should be sounding very loudly indeed. Do not compound the debt by continuing to supply the customer, even if your sales manager is bleating that you will lose them as a customer – if they don’t pay you then you don’t want them as a customer!

The truth is that most of us know when we are doing business with a troublesome customer, or one that may become so. Trust your instincts! A bad feeling about the account preceded almost every bad debt I have ever had, many of them from the outset. Trusting your instincts is a key part of being in business; not everything needs to be dissected and rationalised. If it feels bad, it usually is.

Here are some rules:

  1. Assess customers’ creditworthiness and set appropriate credit limits. You can ask new customers for trade references or pay for an online credit check.
  2. Draw up clear terms and conditions – Standard Ts&Cs can be downloaded from numerous sources on the Internet
  3. Send your invoices promptly and start chasing payments as soon as they become due.
  4. Phone your contact when an invoice becomes overdue and ask them to help. Routine letters tend to be ignored. Be diplomatic.
  5. Resolve any disputes quickly. You cannot expect to be paid when there are outstanding issues.
  6. Reconsider the terms on which you do business with customers that regularly pay late: charge more or cancel their credit.
  7. Don’t compound the debt by continuing to supply!

Comments are closed