How to Choose Debtors to Avoid Bad Debts in Future

Creditors must learn how to select debtors correctly. This is the only way you can avoid bad debt customers in the future. Statistics show that 80% of bad loans are generated by clients with whom the business has had a relationship for more than 12 months. This means that existing clients who have been with the business for a long time should be carefully screened before they are allowed to apply for a credit line. Random credit checks are not sufficient as they cannot accurately predict future risks for your business. Let’s look at effective ways to identify debtors and avoid future bad debts.

Monitor customers’ behaviour.

Keep track of how long it takes for the client to settle the account. Once you have established a contact, follow up with the client if they are slow to pay. You can only transact with customers who pay their bills on time to avoid future bad debts.

Invoice your debtors.

Invoice a debtor each time the debt becomes due. This will help him or her psychologically get ready to pay. To remind the debtor to pay promptly if he or she does not, Do this consistently for all debtors. If the customer is willing to pay a partial amount, make payment and then ask when the full payment will be made.

Provide discount incentives.

Incentives can sometimes be a good idea. Customers will respond to incentives such as discounts if they pay off their debts on time. This encourages them and their families to meet their financial obligations promptly. You can identify customers you can trust by assessing how they respond to these incentives.

Make payments using a variety of payment methods.

Your company should be able to accept payment from many sources. You should be able accept checks by phone as well as postal checks. Customers will be more likely to pay their debt if they have access to convenient payment methods. This will help businesses avoid future bad debts.

While there is no way to avoid future bad debts, there are some things you can do to reduce the risk to your company. It is important to assess your customer’s credit history before you extend credit. This will help you avoid bad debts. It is important to keep in touch with your customer even after you have made the decision to extend credit. Customer will be more likely to remember to pay their debts on time if they are kept in touch. This communication helps you monitor and evaluate the best collection methods. If you select debtors carefully, credit can be a great way to make money for your business.