Your business can easily sink in debt if your accounts are not well managed. It is common business practice to give products and services on credit because it is how businesses have always been run. However, getting into this habit without much consideration of your financial position or your debtors’ can easily land you in financial problems. To avoid plunging into debt and closing your business, keep the following tips in mind:
- Organize your accounts
There are software applications designed to help in organizing your finances. Your business’s receivables and the payables accounts are helpful in determining your business performance. You should therefore have your accountant using the best applications to have a well-organized receivables account.
You may also use excel. Invoicing software will also be beneficial in keeping track of all your accounts. Dispatch of invoices to customers will also be simple.
- Professional credit management
An organized credit application system should be set up. This will help you get all the necessary information about your customers before giving products or services on credit. You should also avoid setting net terms for all your clients because of different needs. The information from the credit application will be useful guides when vetting your customers.
- Set up credit limits
Besides having an organized credit application system, you must have credit limits. As the business owner or director, the power of setting the limits lies with you. You can therefore start with lower limits for your customers then extend the credit if the customers prove that they can pay.
You should consider letting your clients know of the flexibility of the limits and if they are worthy, they will have the floor of their credit limit raised. This will be a good incentive for debts to be paid in time. You can learn more on accounts receivables management from the experts at GGR Inc.
- Be professional
Professionalism matters a lot when collecting debt. Even with delays in payments, you shouldn’t take drastic measures. Understand your customers’ needs and find a way around the repayments. You can ask for professional help from certified debt collectors. The debt collectors will professionally negotiate and get the debt repaid.
You may find out (through communication or investigations) that your client is at a tough spot. Instead of harassing them or taking them to court, you should negotiate and settle on a payment plan. Repayments in instalments will be better than spending time and money at the courts.
- Hire in-house debt collectors
If you run a big firm and you have a big number of debtors, it will be a prudent step for you to have in-house debt collectors/ credit managers. You should also have lawyers to facilitate the debt collection processes. This will be your best shot at getting your money back from delinquent customers or account holders. This will improve the state of your accounts receivables.
- Send reminders
Humans will forget or pretend to forget. Sending reminders will remind your debtors to make the payments. The reminders will also be important in cases where you have to take the defaulting customers to court.
In conclusion, running into debt or filing for bankruptcy is an expensive financial process that can be prevented by better debt management. The above tips will help you in managing your accounts and reducing bad debts.
Stanford James is a debt manager at GGR Inc. As an expert in account receivables management, he serves as a financial advisor for most firms in the US and the UK. Read more on debt collection and credit control on his book, ‘Taming Debtors’.