Carrying bad debt can quickly become burdensome and a cause of cash flow problems. Not only does it monopolize resources, but it can also hinder forecasting and the bottom line.
A way to avoid business cash flow issues – and be open to potential opportunities – is to adopt a forward-looking strategy for minimizing debt.
It all boils down to ensuring you have defined – and provided your customers with – the right information. First, set yourself up for success in two ways: implement standard conditions and payment terms. Every client should be aware of this agreement, including any penalties for late payment, from the onset of the relationship. Next, proactively decide when it makes financial sense to chase down an unpaid invoice.
The burden of proof is on you and there are considerable costs associated, so knowing your ‘tipping point’ will save resources in the long-term.
Once you’ve put the proper measures in place, you should build a relationship with your principal contact within your customer’s organization. Instead of waiting for a bill to become overdue, you can then initiate a transparent dialogue around objectives and issues management. For more tips, you can also read our article on how to maintain good customer relationships when facing unpaid invoices.