Avoiding the High Cost of Collecting Bad Debt
by Veronica Stone on November 6th, 2007
Running a business can be expensive at times. There are ups and downs in your business just like in anything else. One thing that can really damage your business is collecting bad customer debt. This would be where the customer is behind on payments, or hasn’t paid for services acquired or products received. This sort of thing happens sometimes, but allowing this to happen can cost you much more money than the original price of the service or product, not to mention a killer headache.
You may have to pay court costs in order to try and get the money that you are owed, not to mention the cost to retain a lawyer. There is still the possibility that if you get a judgment for the monies that you’re due, the customer will simply ignore the judgment. While the judgment will go on their credit report, they can still ignore the fact that they owe you money.
When a customer is behind in payments or hasn’t made a payment, you’ll probably find that they are very difficult to contact, and that they make a lot of excuses. They may tell you that the payment is one the way, or provide you with a slew of other excuses that they think will get you off their back for the time being. This can be very frustrating and time consuming, resulting in even more cost to your business.
Here are some ways you can avoid these costs (and hassles) up front:
Require a credit check for your customers or clients. This way, you can tell whether or not your customers have had a judgment placed on their credit records in the past. If they have, they are probably more likely to accumulate debt from other places as well.
Get a signed agreement. Do yourself and your business a favor by making sure your customer signs some sort of written agreement before you provide them with any services or products. If you do not secure their signature on an agreement, you will not have a leg to stand on in court. This is not good, as you will lose the money that you are owed, and probably end up eating the court costs as well.
Charge a down payment or deposit. With large purchases or ongoing/lengthy work, you should make sure that you charge the customer some sort of up front payment or deposit. This will, at the very least, ensure that you are able to obtain a portion of the money for services rendered or products sold. Insert a clause into the contract that the customer does not get full ownership until the payment is made in full for the services or products.
When you are running a business, it is important to look after the business’s best interest. By allowing customers or clients to build bad debt, you are not looking after the best interest of the company. Following the tips above will most definitely save you money in the long run, and keep your business healthy and profitable.
