Prevention is always better than cure when it comes to bad debt. Taking proactive steps to protect your business from non-payers can save you significant time, money, and stress in the long run. Here are the key strategies every business should implement.
Conduct Credit Checks
Before extending credit to a new customer, conduct a credit check. This will reveal their credit history, any county court judgments (CCJs), and their overall financial stability. Credit checks are inexpensive and can save you from significant losses. For existing customers, run periodic checks — a customer's financial situation can change quickly.
Use Clear Terms and Conditions
Your terms and conditions are your first line of defence. They should clearly set out payment terms, late payment interest, retention of title clauses (where applicable), and your right to suspend work or supply for non-payment. Make sure customers accept your terms before you start work. A signed contract or terms acceptance email is essential evidence if you later need to recover a debt.
Request Deposits or Stage Payments
For larger orders or projects, request a deposit or stage payments. This reduces your exposure and ensures you have some cash flow even if the customer encounters difficulties later. Many businesses in the construction industry use stage payments linked to project milestones — this is an effective way to manage risk.
Invoice Promptly and Accurately
Send your invoices promptly and make sure they are accurate. Include all required details: your business name and address, customer details, a clear description of goods or services, the invoice date, payment terms, and payment instructions. Disputed invoices are a common excuse for delayed payment — accuracy reduces this risk.
Implement a Credit Control Process
Have a systematic credit control process. Send reminders before the due date, chase immediately after the due date, and escalate progressively. Many businesses fail to chase debts because they're busy with other work — but the longer a debt remains unpaid, the harder it becomes to recover. Consider using automated reminders or engaging a credit control service.
Know When to Stop Supplying
If a customer has overdue invoices, seriously consider whether you should continue supplying them. Every additional supply increases your exposure. It's often better to stop supply and resolve the existing debt before resuming the relationship.
Have a Recovery Plan
Even with the best prevention, some customers will still fail to pay. Have a clear recovery plan in place. Know at what point you'll engage a debt collection agency, what your legal options are, and which professional advisors you'll contact. Having a plan means you can act quickly and decisively when a debt goes bad.
Hays Collections works with businesses across the UK to recover unpaid debts and implement stronger credit control processes. Contact us to discuss how we can help protect your business.
