Protecting your business from bad debt
With high competition comes the need to attract and retain customers, thus, most businesses operate on credit terms. One of the ways customers are encouraged to patronize your business is by giving them favorable credit terms and the flexibility to settle invoices within 30, 60 or even 90 days.
Operating a business on credit terms does not come without risks, some accounts receivable end up non-recoverable as customers default on payment terms. A bad debt arises when customers and clients do not pay when invoices are due leading to aging receivables. Aging receivables can in turn result in debt never being paid.
Bad debt is an expense to a business as revenue is not recovered in the form of cash for services provided or products sold. Every business needs to survive on profitability and positive cash flow; the credit risk that arises from bad debt threatens the survival and going concern of the business.
The task of driving sales, attracting customers and managing accounts receivable need to be carried out simultaneously to protect your business from bad debt and the risk of going under due to cash flow problems.
How to manage bad debt and protect your business
The first step to avoiding bad debt is through customer risk assessment. Carefully assess customer credit risk based on references, history or previous transactions to determine the value of sales that can be afforded to each customer on specific payment terms.
Also vital for managing bad debt is, ensuring accurate invoicing processes, updating customer information–legal business name, address, contact number, etc. This ensures timely invoicing and reduces disputes between your business and its customers.
The next most important step is engaging an effective accounts receivable management process. Most times, it is necessary to outsource this process to professionals who specialize in managing customer relationships, invoice information, credit assessment and collection strategies.
For a fee, accounts receivable management agencies help you secure and guarantee your accounts receivable. This enables you to focus on your core business operations while being at ease with the fact that your cash inflow will not be obstructed due to bad debt.
Effective accounts receivable management ensures tight credit control and monitoring. This involves analyzing customer information, sales records, invoices, as well as, frequent follow up on customers when invoices fall overdue. This process, although time consuming, is essential to protecting your business’ cash flow.
Avoid slow receivables turnover with Accord Financial
Operating a business on credit terms is not bad in itself, however, you need to adopt strategies that help your business avoid slow receivables turnover and reduce losses to credit risk and inherent losses to bad debt.
Accord Financial offers complete accounts receivable management services; 100% customer credit protection; complete customer account management and effective credit collections services. We also help your business free up cash flow through alternative accounts receivable financing solutions.
With vast years of experience and broad industry insights, Accord Financial guarantees effective receivables management and a comprehensive invoice collection methodology by leveraging team expertise, client relationships and sophisticated information technology.
Be proactive in managing your cash flow and protecting your business from bad debt loss by engaging professionals at Accord.