Top 5 ways to prevent a bad debt

“Prevention is better than cure”. A phrase we have all heard, often in the context of health issues however there is simply not a truer word spoken when talking about bad debts. A debt on its own is not always a bad thing- it is an asset, a promise, an IOU that can and often is, expected to turn into money. 89% of businesses in Australia provide a credit facility to their customers, allowing them time to pay. That is over 1.5 million businesses who are at the mercy of their customer to get paid. A monumental risk in anyone’s language. The good news however is that most customers do the right thing, and pay on time, thus vindicating the business owner’s decision to provide trading terms. It is when these deadlines are missed however, and subsequent attempts to speak with the customer are ignored, that problems arise and the previously happy business owner is now a nervous wreck worrying that they will never see their money.

It need not be this way however, and there are systems and processes that can be put into place to mitigate the risk and prevent a debt turning bad. Here are our top 5 ways to prevent a bad debt:

1. Research new customers. Google their name, their mobile number, email address or business name. Whatever it is, just do some sort of due diligence. This is a task can be performed in less than a minute but can be the difference between getting paid and not. Become a member of a Credit Report Agency like Creditor Watch ( and for a minimal fee of around $40 per month, you can run unlimited credit checks on any commercial entity. If you see something concerning, ask the customer about it and explain that you are sure they would do the same thing if they were in your shoes. Honest customers should never be offended about you trying to protect your asset.

2. Invoice the customer immediately. The moment you complete the job or provide the goods, provide the customer an invoice and ask them to confirm to you that they have received it. Whether this be via email or in person, this is a step that is simply too important to delay or put off until another day. Every day that passes with you not paid is another day the customer keeps hold of your money. Don’t allow yourself to be a bank, funding their lifestyle or business cash flow. Reiterating your terms and the deadline for payment is also a good way to ensure they understand your expectations and never assume that your invoice was received. Ask them to confirm it was.

3. Send a courtesy reminder the day your invoice is due. Make sure this is worded in such a way that you are seen as doing your customer a favour, not the other way around. They will appreciate that you have their best interests at heart given you don’t want them to forget to pay which could lead to any number of issues for them.

4. Chase up outstanding invoices immediately. Regardless of the amount, set a precedence and show a level of diligence that your competitors do not. Ring the customer the day after it is due, and follow up in an email. The best customers will respect this and do all they can to abide by your conditions and you will be seen as thorough and professional as a result. Businesses that are lax in chasing up invoices for payment are seen as lazy, complacent and unprofessional and the customer will assume these same qualities are inherent in your work. Not exactly an image you want to be known for.

5. Get a part payment as a bare minimum. 90% of customers who pay something, will eventually pay everything. Research proves this time and time again and the benefits of a part payment are simply too numerous to ignore- It is an admission of debt. It negates any future claims of dispute. It gives you another 6 years to pursue the debt. It “invests” the customer in repaying the debt and can be used as leverage down the track given if they don’t pay the balance, the part payment will be wasted.

There you have it. Follow these steps and you give yourself every opportunity to get paid on time, every time, allowing you to focus on building your business, not chasing your tail.

Top 5 ways to prevent a bad debt

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