Bad Debt Management
In Summary
We have explored the potential tax barriers to bad debt relief, and the costs associated with implementing financial products to recover the business’ doubtful debts. Effective collection of debtors should be one of the prime objectives of any business.
There is no point in increasing sales if the business is failing to collect payments in the appropriate manner. Furthermore, if the business has high levels of debtors it may well find difficulties when the time comes to settle its obligations. The credit terms offered to clients will depend on both the industry and business’ style. However, to speed up debt collection any business should:
- Start with formalising the credit terms of the company. The more standard the terms are the easier it will be to manage debtors
- Clarify the credit terms with customers when the order is placed or the services are agreed
- Consider the need to request payments on account in advance either partly or totally
- Use a direct debit system
- Ensure there is an effective internal control system to keep track of debtor balances.
- Stick to the terms. There should be no embarrassment when requesting payment when due. Formalise a standard system of reminders which is professional yet polite.
All the above should be considered general guidelines as each case will have specific circumstances that need to be taken into consideration. One should always consult an accountant before acting on any of the issues covered.