Do your sales only increase by giving your customers credit? Credit sales put you at an advantage because your customers focus less on the product price and build relationships with your business.
So you become their preferred supplier, which generates more sales. But, credit sales carry the risk that they may become bad debts. So you need to put debt management practices in place to make sure your bad debts don’t interrupt your cash flow. Read on for seven debt management tips to keep your bad debt to a minimum.
Implement these seven debt management tips in your business
- Make sure every new customer you get (regardless of their reputation), completes an application form. Conduct a credit check on them. If they have a bad habit of unpaid debts, decline their application!
- Have a debt management policy in place to guide management and staff. Make sure your policy clearly states how you’ll deal with individual and business customers.
- Make sure your debt management policy, your application forms and your ‘Ts’ and ‘Cs’ are in line with the Consumer Protection Act of 2008. Some of your debtors may want to seek refuge there.
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Four more tips to manage debt in your business
- Create accurate invoices for sales and forward these to the customer as soon as possible, preferably within 24 hours.
- Manage the customer not the debt. Good relationship management can reform some debtors.
- Categorise your credit customers into ‘good, average and bad’. Further categorise the bad payers into ‘can’t pay’ and won’t pay’. Have a collection policy for each category. For instance, how often do you call or email to follow up on a debt?
- Have a debt collection agency to collect bad debts, it’s cheaper that way.
Debt management is similar to swinging a double-edged sword. Credit sales can propel growth but if you don’t manage it well, debt can cause serious financial problems that can lead to bankruptcy.