10 tips for avoiding bad debts

Bad debtors can be very dangerous for new and expanding businesses, having a damaging impact on cash flow.

Here are 10 tips for avoiding bad debts:

1. Obtain a credit reference on the organisation that you intend to trade with
2. Avoid doing business with companies whose credit rating is poor
3. Ensure that the other company knows your payment terms at the outset
4. Invoice at the earliest opportunity
5. State the payment terms clearly on your invoice
6. If payment is not received by the due date, send a reminder as soon as possible, and certainly no longer than one week after the due date. It is good practice to have a policy to chase the debt after a fixed number of days following the due date
7. If there is still no response, chase up the debt by telephone. This will enable you to determine whether there are any queries on the invoice and, if not, to discuss a date for the settlement
8. Write to confirm the agreed settlement date and send by fax or post
9. State clearly that the matter will be referred (after the agreed extended period) to either:
   • A debt collection agency
   • A firm of solicitors, or
   • The county court small claims department
10. If the debt is still due after this, keep your word and take action