Some losses are inevitable when you decide to extend credit to your customers. That said, unless you are willing to forgo the credit part of your sales, you’re going to have to figure out ways to control your bad debt losses.
How to get a handle on bad accounts
Once you have extended credit to a customer, you have a stake in continuing the relationship even if you suspect there might be trouble in the near future. You don’t want to crack down on a good customer too hard too soon, yet you don’t want to be taken advantage of by someone who has become unable or is unwilling to pay. The problem is distinguishing between slow pay and no pay.
What you need is an early warning system to detect a credit problem in the making. This can help you stop additional sales to that customer and begin collection procedures in earnest. You can begin building this system by considering these signs that something may be amiss with a account:
- Erratic payments. The customer has begun paying erratically, settling up on smaller invoices while larger ones just get older, at the same time disputing specifications or terms.
- Poor communication. The customer fails to return your phone calls.
- Unavailable information. Your requests for updated financial information are ignored.
- Increased credit requests. The customer places jumbo orders and presses you for more credit.
Any one of these signs could be an indication that more account problems may be coming down the line. If you’re concerned about a client account, make it a point to speak to your client directly about the account. It may help clear up misunderstandings about payment expectations.