7 Effective Bad Debt Risk Management Steps for Your Business

“Diligence is the mother of good fortune. ” – Benjamin Disraeli 

The best thing you can do for your business cash flow is to have in place an effective bad debt risk management policies and procedures.  This would allow you to first manage risk rather than bad debt. 

It is much easier to be proactive by implementing credit safeguards like bad debt risk management procedures rather than having to deal with it once it has reached the bad debt stage – often this is already too late for a large percentage of debt to be collected.

Taking a proactive approach means that managing the risk is part of the credit control system, with defined steps and procedures and it is followed from start to finish.

This might sound too farfetched and technical for small enterprises, but in essence it is common sense and could be done easily in few simple steps.

  1. Identify and define your standard credit terms, risk assessment and assurance processes currently in place.
  2. Get the right client/customer for your business (by identifying and defining the target market and the  right client profile).
  3. Credit check (credit check the potential client with other creditors will be able to flag high risks up front).
  4. Have in place a policy for dealing with high risk clients/customers (be it an upfront deposit payment, instalment payment plan, or simply a signed personal guarantee).
  5. Contact the business government agencies (egg Department of Fair Trading in Australia) to check if the prospective client has any complaints lodged against them. This is free and may offer additional insight to the client’s business ethics.
  6. Go to the experts (get various reports from VEDA credit biro, but make sure you have the potential client’s written authorisation to check their records. Understand the Business and the Individuals Behind the Business.)
  7. Access a range of reports with VedaCheck.com that now combine consumer and commercial credit information. You will now not only be able to check the business – but you will be able to check the directors behind the business, any aliases and other business relationships. You will have more insight and understanding of those you are doing business with and be in a better position to manage or minimise risk to your business.

Following these 7 steps   will provide your business an easy way to quickly evaluate, comprehensively review and deal with possible payment problems long before any unrecoverable time and money is spent by your business.  Prevention is the best cure!

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