Monitoring and maintaining cash flow is an essential part of running a thriving business. Unpaid invoices and bad debts can lead to a business’s downfall. You need money to maintain operations, replenish stocks, and so on.
A slight delay in cash flow can cause financial constraints and interrupt activities. The ongoing pandemic has further resulted in many cash flow hitches. Firms are struggling to stay open. And to counter these challenges, businesses have begun paying closer attention to cash flow issues by prompting their clients to pay on time.
A business is more likely to reduce bad debts by developing a proactive payment system that keeps track of unpaid customer invoices.
Reduce bad debt using the following checklist at the various purchase stages.
- The Pre-Sale Phase
Begin by ensuring efficient cash flow systems that integrate billing and accounting software. Once such systems are in place, you can provide customer credit based on various considerations such as purchase frequency and credit history.
You can quickly identify a potential consumer’s creditworthiness by asking them to provide records from banks or other credit experts.
- The Sale Phase
It’s critical to have a transparent relationship with consumers. Be sure to help them understand the payment terms that come with a hire purchase sale. It also helps to notify the customer of the payment plan and give regular payment dates.
During the purchase, keep all agreements in the record. Adding several standard legal provisions in your hire purchase agreement ensures the consumer understands the repercussions of not settling the debt.
- After-Sales Phase
Once the customer completes a hire purchase, it is critical to follow up with them to ensure they pay according to the contract agreement. Try to be proactive at this stage, and if the need arises, appoint someone else to follow up on late payments.
- The Salvage Phase
A business can stack up bad debts if multiple consumers fail to settle their dues. Establish a clear recovery policy to deal with bad debts. Such policies ensure customers understand that your business will not be quick to write off debts.
Customers should be warned that you’ll go as far as hiring a third-party collection agency or seek legal action to ensure promised payments are fulfilled.
To Wrap Up
Bad debts can affect business growth negatively. However, firms that analyze and prepare for every step of a sale can help reduce these. A proactive approach, like assessing a customer’s creditworthiness, can help you make informed decisions when selling goods on credit.