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3 Common Mistakes That Lead to Bad Debts

As a business person, you want to offer your customers the best service possible, and sometimes that means extending credit to them. However, not all customers are reliable when it comes to paying their bills, and you may end up with bad debts that hurt your cash flow and profitability.

How can you avoid this situation? Here are three common mistakes that many businesses make when extending credit to their customers, and how to prevent them.

## 1. Not checking the customer’s credit history

Before you agree to extend credit to a customer, you should always check their credit history and consider checking their credit score. This will give you an idea of how likely they are to pay you back on time, and how much credit you can safely offer them.

You can use various tools and services to check the customer’s credit history, such as credit bureaus, trade references, bank statements, and financial reports. You should also ask the customer for their consent before you run a credit check on them.

## 2. Not having a clear credit policy

A credit policy is a set of rules and guidelines that define how you extend credit to your customers, how you collect payments, and how you deal with delinquent accounts. Having a clear credit policy can help you avoid confusion and disputes with your customers, and ensure that you get paid on time.

Your credit policy should include the following elements:

– The criteria for granting credit, such as the minimum credit score, the required documents, and the credit limit
– The terms and conditions of the credit, such as the interest rate, the payment schedule, the late fees, and the penalties
– The procedures for invoicing, sending reminders, and following up on overdue accounts
– The actions for recovering bad debts, such as hiring a debt collection agency, taking legal action, or writing off the debt

You should communicate your credit policy to your customers clearly and in writing, and have them sign a credit agreement before you extend credit to them.

## 3. Not monitoring the customer’s payment behavior

Even after you extend credit to a customer, you should not stop monitoring their payment behavior. You should keep track of their payment history, their current balance, and their credit utilization. This will help you identify any signs of financial trouble, such as late payments, bounced checks, or maxed-out credit.

If you notice any red flags, you should contact the customer immediately and try to resolve the issue. You may need to adjust the credit terms, offer a payment plan, or suspend the credit until the customer pays their outstanding balance.

By avoiding these three common mistakes, you can reduce the risk of bad debts and improve your cash flow and profitability. However, if you still encounter customers who refuse to pay their bills, you may need to hire a professional debt collection service to help you recover your money.

Debt collection professionals can help you save time and resources, and increase your chances of getting paid. They have the expertise and the tools to locate, contact, and negotiate with your delinquent customers, and to take legal action if necessary.

If you are looking for a reliable and reputable debt collection service, you have come to the right place. We have over 38 years of experience in helping businesses of all sizes and industries recover their bad debts.

Contact us today for a free consultation.