Avoiding bad debts and cash flow difficulties requires preparation. Implementing the following procedures in your business can help to ensure that you avoid the burden of bad payers:
Set clear credit policies at the outset of any credit agreement: Be clear about what you expect from the very beginning. Customers will often have their own credit policies, such as paying after 45 days. If it is your policy to only extend credit for 30 days you need to decide whether you want to play by the customers rules or pass on the business.
Get a signed contract: A credit contract does not need to be a complicated document that takes a significant amount of time and resources to prepare. It can be as simple as spelling out what you will provide and when; what the customer must pay and when; how disputes are to be settled; and penalties for late payment.
Always conduct a credit check prior to the extension of credit: Credit checks can save a significant amount of heartache and prevent your business the burden of customers that can’t or don’t pay on time. By providing you with an overview of the financial health of a prospective customer, a credit check allows you to make an informed decision about the extension of credit.
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Christine Christian was appointed CEO of D&B Australia and New Zealand in 2001 after leading the management buy-out of these operations from D&B global company. In this role, Christine has more than doubled the market value of D&B. In 2007 Christine managed the competitive sale process of D&B Australasia from AMP Capital to Lazard Carnegie Wylie.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
