A small business guide to staying on top of bad debt

As any small business owner will probably already know, bad debts can affect you far more than they affect large businesses. Larger businesses can have a buffer to survive bad debts while small businesses don’t.  When you are working with smaller cash flow funds and juggling income with expenditure, getting sales in and having fewer people within the business, you have to be flexible and cover multi-functional roles.

If you’re self employed, then often you’re the salesperson, marketing team, accounts, customer services and do your day to day job role amongst other things such as reception and administration. Sound familiar?

So, it’s difficult amongst all of those things to keep on top of the money coming in and ensure you get paid from your customers. Being able to easily manage your cash flow is a key benefit of our Sage 50 Accounts, and why is that? Well, it’s vital to the success of your business….no income = no business!

Unless your business runs on a cash basis, where you get the money in for goods/services up front, from my experience your invoicing accounts will probably fall into a few different categories;

  • Good payers who pay promptly or on time
  • People who pay once reminded, as they’ve misplaced the invoice or need a gentle reminder
  • And those that you have to chase, and chase, and chase and eventually get the money in

So, here’s a few of my top tips to help towards making sure you get paid for your goods or services.

  1. Always get the invoice in as soon as you can, once you have completed the work to a high quality standard.  This will give customers less of an argument for not paying the invoice for poor workmanship.  If this situation does arise, then handle it in a professional manner, the quicker you sort the problem, the quicker you’ll get paid.
  2. Include a remittance advice note which makes admin quicker at their end if paying you by cheque.
  3. Always send out a reminder once your terms of payment time is reached eg 30, 60, 90 days or calendar monthly, if this is your chosen debtors agreement
  4. Remember, larger companies usually pay monthly, so if you missed the first monthly payment with your invoice going onto their system, you may not get paid until their next monthly payment.
  5. If things go on too long, don’t be afraid to pick up the phone, send reminders such as a bad debt letter or statement.  Most accounts software these days includes useful tools to help you remind the customer about their payment.
  6. If you’re really struggling ask to speak to the main accounts person. Don’t be pushy, rude or abrupt or you’ll probably ruin your best chances of ever getting paid.
  7. Do, be persistent in terms of calling / chasing back when you said, but give them reasonable timescales, no need to call back every single day, for example, if they use the old “the cheque’s in the post routine” give it time to come and then call back to advise of none arrival.
  8. If you are a Sage 50 Accounts customer make sure you’re using all the cash flow features like creating and printing invoices, debt chasing letters and  reports advising you of who owes you what and how old the debt is.

Hopefully these tips will do the job for you, but not every time, companies do go out of business and this can come as a bit of a blow to a small business relying on money coming in.  However, if you do your best to get paid on time and chase, then generally this should help your situation.

Melanie Dawson, Small Business Team