Learning how to choose debtors wisely is a priority of every creditor. This is the only way to avoid bad debt customers in future. According to statistics, 80% of bad debts are generated from clients who the business has transacted with for a period of more than 12 months. This implies that long-term, existing customers should be thoroughly screened before allowing them to receive a line of credit. A random credit check is not enough, because it cannot help you accurately predict the future risks of your business. Let’s take a close look at some effective techniques to choose debtors to avoid bad debts in future.
Track customers’ behavior.
Monitor how long the client takes before he or she settles the account. Once this has been established, make a follow-up contact as soon as you notice that the customer has taken too long to pay. Only transacting with clients who pay their debts on time can safeguard you from future bad debts.Once you deem a customer trustworthy of a line of credit, obtaining a credit report can help you determine how much credit can be safely extended to a customer.
Invoice your debtors.
If you invoice a debtor every time the debt is due, he or she psychologically gets prepared to pay. If he or she still does not pay, give a reminder to speed up the process. Consistently do this for all debtors. When the customer offers to make a partial payment, take payment and ask him or her when full payment will be made.
Provide discount incentives.
Sometimes customers will respond to incentives. Giving them discounts when they pay their debts on time encourages them to meet their financial obligations as soon as they are due. Assessing how customers respond to these incentives can help you chose customers who you can trust in future.
Take payments from a variety of methods.
Make sure your company is prepared to receive payment from a variety of sources. For instance, you should be able to accept check by phone in addition to a check in the mail. Taking methods of payment that are convenient to customers encourages them to pay their debt. This can significantly help a business avoid future bad debts.
There is no guarantee that you will completely avoid bad debts in future; however, there are safeguards that you can implement to lessen future risks to your business. Gauging your customer’s ongoing credit performance before extending any credit facility to him or her will dramatically help avoid incurring bad debts. Even after you carefully decide to extend a credit to a customer, keeping in touch is key. Regular communication can assist the customer in remembering to pay their debt on time. It also helps you to continually monitor the most effective methods and techniques to employ for collection. Offering credit to customers can make your business a lot of money, if you choose debtors wisely.
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