Managing overdue accounts is one of the most challenging tasks a business owner can face. This is especially true for many new entrepreneurs that are aiming to establish healthy relationships with their clients. One common scenario is that business owners will often find themselves in a stalemate situation where they’re stuck between the urge to recover unpaid amounts, whilst trying to maintain a level of customer loyalty.

If you are experiencing challenges whilst dealing with your overdue accounts, we recommend you try to apply these five effective tips to help prevent debts in the first instance.

preventing overdue account

5 ways of preventing overdue accounts

1. Have a well-structured credit policy and be sure to enforce it.

Your credit policy must be clear in explaining your company’s rules when it comes to extending credit. Examples include the amount of money you’re willing to lend (credit limit), the particular individual or company structures you wish to extend credit too (customer profile), and of course, the timetable for which you will consider a payment to be overdue (trading terms). Ensure that ALL your staff members are across the credit policy and are aware of the ramification if any clause within the credit policy is breached. Remember to always update the credit policy to ensure the policy remains strong and robust during changing economic periods.

2. Be mindful of customers with bad credit history

The best and most efficient means of avoiding overdue accounts is too avoid going into business with customers that have negative credit records. A bad credit rating (company or personal) is a surefire indicator that they are a risk and will be a problem in the future.

In the scenario where you are still a small but growing company, and you want to extend credit to help grow your business, it is highly recommended you explain to these risky operators your credit rules as early and firmly as possible. Manage the risk by offering strict or reduced terms and offer minimal products and services until they were able to prove themselves as trustworthy professionals. Additionally, never try to negotiate with businesses or individuals unless a signed agreement exists and is in place.

3. Date Stamp your invoices with the date the Invoice is due for payment

Never anticipate that your customer is going to take the initiative and look at the date the invoice is due for payment.  We recommend you stamp or flag this to draw their attention to the due date.  Always stamp or highlight your invoices.

4. Avoid further Transactions with any customer that is already overdue

Do not extend credit or allow clients to purchase more of your products or services while they have an overdue balance owing on their account. Always maintain this rule. If you allow clients to trade while not paying their previous account/invoice, you increase your exposure and are at risk of not recovering both amounts. Best practice is to place any customer account on hold/stop supply and only release further products or services if paid in full or allow future transactions to be paid on a cash on delivery basis (COD).

5. Invest in hiring a professional debt collector

Many businesses save time and resources by referring overdue debtors to a licensed professional debt collection agency. Having a professional debt collector as a partner, can not only help with the challenges of dealing with challenging customers, but should help reduce bad debts and improve your working capital.

Brodie Collection Services is a full service agency offering a multitude of services and is one of Australia’s leading debt collection firms. With offices in Melbourne, Sydney, Adelaide and Brisbane we can assist with all your debt collection & recovery, legal support services and credit risk management requirements.

Visit our website to find out more about the debt collector services that are offered by Brodie Collection Services or call us on 1300 276 343.