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How to Reduce ‘bad debt’

How small businesses can reduce bad debtGiving credit to your customers is a great way to stay competitive. It allows them to enjoy your products or services without having to pay for 30, 60 or even 90 days. But what happens if your customer is late in making the payment date? And what can you do if they don’t pay at all?

Bad Debt!

Any debt which is not paid on time or not paid at all is often referred to as ‘bad debt’. The word bad is, well, bad. It has an immediate implication on your cash flow, makes it harder to get credit for your own company and, depending on the size of the invoice, can have serious impact on business health. So what can be done to overcome this?

Credit Recovery – solve your current problems

One solution to consider for current existing bad debt is to look for a debt recovery team. These take action at any stage of the invoice transaction to make the difference between an invoice not paid on time and one which is.

These recovery teams are ideal for businesses who have already tried every method available to them for collecting credit and simply don’t have the time or resources to chase any longer. The recovery teams will have collection strategies which are tailored to every customer and work with your team to ensure their approach does not scare away your customer.

Credit Protection – stop problems from occurring in the future

There has never been a better time to protect your own cash flow and credit rating. The double dip recession is causing lenders to have even less confidence in businesses and so they are becoming increasingly less willing to hand out credit and loans. Credit protection can act as your safety net, saving you from bad debt from your customers, thus saving your own credit rating.

Credit protection company services are like insurance; if you customer cannot pay, you get the invoice value from the credit protection company. In order to benefit from credit protection you will pay a monthly charge to the credit protectors, meaning no matter how many invoices you have, you are always covered if your customers cannot pay.

Credit Protection Advantages

Here are a few of the benefits of taking out credit protection:

  • Reduced Risk as your cash flow is protected from unexpected blows which can cause problems, minimising the risks of bad debt.

  • Customer Insolvency means your customer will not be able to pay their debts – with credit protection you are covered.

  • Non-Recourse credit protection fits perfectly with invoice factoring as the factoring company does not ask for the advance back from you.

  • Protects your Own Credit Rating and give you peace of mind as bad debt from your customer may lead to your own bad debt to your lenders.

  • Longer Credit Terms can be offered to your customers as you know that you will get the money if they pay on time or not.

Credit protection and credit recovery work hand in hand to ensure your cash flow stays healthy now and in the future. Make sure you shop around to find the right credit protection for you, or alternatively, use a broker to do it for it. Don’t be caught out through this double dip recession, act now!


Graham Tripp is a business copywriter for Touch Financial and Factoring.org.uk

For related business advice articles read our guides on: Borrowing Money from Family & Friends, Credit Control and Setting Up a Credit Control System.

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