Here are our top tips to make everyone at all levels of the business aware of the implications of not collecting all monies due to a business.

1. Examine the culture of your organisation

Is the pressure on ‘making the numbers’ so great in terms of rewards or sanctions that staff will resort to risky or underhand methods to achieve them? Could you factor in the quality of leads and sales rather than just the raw numbers?

2. Educate your workforce

Bad debt affects your P&L, which will affect their salaries and, ultimately, their job security. Employees must understand the role they play in creating a sustainable business.

3. Establish a bad debt forum

Representatives from each function should meet regularly to discuss progress on reducing bad debt.  They can cascade information down to their colleagues about emerging issues and, conversely, feedback suggestions for resolving them.

4. Check credit worthiness again and again

Don’t take your customer’s credit worthiness for granted after making initial checks. Credit checking provides only a snapshot of a point in time and the information could well be out of date tomorrow. Make due diligence a constant process. Lots of low value orders from a single customer can soon mount up into a large debt.

5. Keep your collective ears to the ground

Is a customer’s business heading for trouble? Encourage staff to keep their antennae tuned for anything that makes them uneasy about a particular customer or order and escalate it. For example, has their usual contact vanished suddenly without trace? Are unusually high numbers of customer employees deserting a possibly sinking ship?

If you do become concerned, rather than stopping credit altogether, you should be able to set the account status to ‘amber’ on your business management software, so that you can keep an eye on the situation. An alerting system would then notify you if anything happens such as a missed invoice date. Equally, employees who have close contact with your customers can feed back any dissatisfaction that might escalate into a dispute about payment.

6. Avoid overloading section heads with information on debtors

Important information on debtors can be overlooked if it is buried within detailed management reports. Many systems have a Microsoft Outlook Dynamic Dashboard which is an insightful tool with the ability to deliver financial data, key performance indicator updates and operational reports all to one familiar, central environment: the Microsoft Outlook desktop. This avoids information overload and means that departmental heads are presented with important business information, such as problem debtors, as soon as they open up Microsoft Outlook.

7. Give all staff involved a 360° view of the customer’s account

Does your software have a customer relationship management function that links to finance and enables problems to be flagged? Everyone who pulls up a customer record, for example in taking a sales order, should be able to see at a glance the customer’s creditworthiness – or otherwise.

The CRM functionality available within many IT systems encapsulates the whole sales cycle from start to finish and equips staff with information held on your back-office systems. The information acquired within credit control becomes available to sales people, while new contact details entered by a sales executive become available to accounts payable for speedier invoicing.

8. Integrate your sales and billing processes

If you’re aware when a customer order is being delivered, you can be immediately on the case in invoicing. Late invoicing can lead to costly delays in receiving payments due to you, while invoices containing errors provide the customer with an excuse for further delay. Automated billing can help to improve the speed and accuracy of invoicing.

9. Review client profitability

It may be that some customers pay eventually but only after an uphill struggle on the part of your credit controllers. This increases your overheads and eats into your profit margins. Analysing and understanding your customer base and assessing every customer’s worth to the business will help you to focus your resources where they will bring best return, both in retaining customers and pursuing new business.

Furthermore, taking a rounded view of customer risk, not just the age of a debt, will help you to apply the right strategy. To give a simple example: a high value order one week overdue represents a greater threat to your business than a low value order two weeks overdue.

10. Take tough decisions

It’s a fact of life that late payers are often the customers who are the most demanding in terms of driving down the price and expecting a lot of support. Do you have an evidence base that will support you in negotiating with these customers to pay more or expect less?  It may be that the cost of servicing an account is too high to sustain and that it would be better to take the tough decision and part company with them.

If business is in short supply, it can take nerves of steel to do this, but many businesses have found that this hard-headed approach frees expensive resources to win and serve more profitable customers. Firing a bad customer can often open a spot for a better one!