top of page

Six Steps to Avoiding Bad Debt

Writer's picture: Melanie ZanderMelanie Zander

Managing debt effectively is critical to your business’s survival. The way you handle invoicing and collections can mean the difference between strong cash flow and financial headaches. At MJA Business Solutions, we believe the key lies in having strong systems and procedures in place—not waiting until frustration drives you to call a debt collector. Here’s how to stay ahead of bad debts with six practical steps.


A stack of invoices with PAID stamps on them

1. Invoice on Time

It’s easy to focus on sales, marketing, and delivery, leaving “the paperwork” for later. But timely invoicing is non-negotiable. Establish a system to ensure invoices are sent out immediately after goods or services are provided.


Every dollar you collect quickly is a dollar you don’t need to borrow or dip into savings for. If your invoicing process feels overwhelming, MJA Business Solutions can help you implement automated software that takes the hassle out of staying on top of your invoicing.


2. Make it Easy to Pay

The easier you make it for customers to pay, the quicker you’ll see the cash in your account. Offer multiple payment options like credit cards, bank transfers, or online platforms like PayPal. While merchant fees might seem like an added cost, they pale in comparison to waiting 60 or 90 days for payment.


☝🏽 Mel’s Tip: Consider integrating a payment gateway directly into your invoicing software to streamline the process even further.


3. Conduct Credit Checks & Set Credit Limits

Before extending credit, it’s essential to know who you’re dealing with. Request credit references from new customers and set credit limits to reduce your risk. It’s better to lose a sale upfront than to face the frustration of chasing a bad debt later.


Establish clear internal procedures so your team knows when to seek approval for higher-risk clients or sales that exceed the credit limit.


4. Be Clear and Clever About Your Terms of Trade

A well-drafted “Terms of Trade” document can save you headaches down the line. Ensure customers sign off on your terms before you begin working with them. Key elements to include:

  • Ownership Retention: Specify that ownership of goods remains with you until full payment is received.

  • Incentives for Early Payment: Offer discounts for prompt payment and enforce penalties for late payment.

  • Payment Schedules: For long-term projects, request deposits upfront or milestone payments throughout the process.


☝🏽 Mel’s Tip: Clarity in your terms sets the tone for a professional and serious approach to payment collection.


5. Send Statements & Reminders Regularly

Consistency is key. Don’t let the original invoice be the last time a customer hears from you before you escalate. Send regular statements and reminders, even weekly if necessary.


From the customer’s perspective, invoices pile up quickly. Which ones get paid first? Usually, it’s the ones from businesses that appear professional and serious about debt collection. Automated software can handle this for you, ensuring no reminders slip through the cracks.


6. Talk First, Debt Collector Later

If a customer hasn’t paid, your first step should be a conversation, not immediate escalation. Often, customers face temporary cash flow challenges that can be resolved with a repayment plan. Always confirm any agreements in writing to ensure clarity and accountability.


If all else fails, notify the customer that you’re escalating to a debt collection agency. Sometimes, this simple notification is enough to prompt payment without needing further action.


The Role of Systems, Software, and Support

Effective debt management isn’t just about chasing overdue payments—it’s about having systems in place to prevent bad debts in the first place. At MJA Business Solutions, we can help you:

  • Implement accounting software to automate invoicing, reminders, and reporting.

  • Streamline your procedures to reduce admin time and ensure consistency.

  • Explore outsourcing options if managing debt collection feels overwhelming.


Bad debts can be avoided with the right tools, processes, and support. If you’re struggling to keep on top of invoicing and collections, get in touch with MJA Business Solutions today.

0 views0 comments

Comentários


bottom of page