Tips to Avoiding Client Debt

Outstanding debts are a fact of life in the business world, and no matter how robust your employment contracts are, sooner or later most businesses have to deal with bad debt. Even reliable clients can find themselves unable to repay a debt, and for those times it’s important to protect your own business and cash flow. Below, we’ve outlined our best tips for structuring your business practices to avoid the issue of client debt.

1. Make Sure your Service is Clearly Defined and Enforceable

No matter what size your business is - from sole traders to multinational companies - it’s well worth the investment to seek the help of a Contract Lawyer. Work contracts and invoices are both formal agreements that become much easier to enforce when they are structured properly.

Ask your lawyer to draft form invoices, receipts and an employment contract that can be altered and used during all future work. The contract should lay out the terms of the work, your responsibilities, how the finished product will be delivered, your client’s responsibilities, as well as how invoicing and debt collection works. Taking a few extra minutes to swap and sign an employment contract could save you both time and money down the line if a client can’t pay an invoice.

While verbal contracts are binding and the informality is friendly, having signed agreements in writing is still the best way to protect yourself from bad debt.

2. Set Your Payment Terms Clearly

When a client engages your business for work, laying out the terms and conditions of the contract should be one of your highest priorities. It can be tempting to avoid talk of payment, or to handle the situation informally, but having clear and obvious invoicing conditions is important.

Communicate how your invoices are issued, how bills are calculated (such as hourly rates, flat rates or retainers), how you handle cost or time overruns and your expectations for payment timeframes. You may also want to include a provision that the client will be responsible for any debt collector’s fees should the situation arise.

3. Have Reminders in Place for Upcoming Invoices

Invoices go unpaid for a variety of reasons. In some cases, an invoice simply falls through the cracks as businesses and their teams become busier. Otherwise, a lack of cash flow or the simple shock of a large invoice can prevent a client from paying on time.

If you deal with regular and repeat customers, establishing a system that provides updates and reminders on upcoming invoices can help avoid non-payment. Even something as simple as sending an email reminder that monthly or quarterly invoices will soon be issued should be enough to minimise the issue.

4. Work with Reputable Professionals

Performing reference and credit checks on your clients is an easy way to protect yourself from shady businesses. While it does take a little extra time to research clients, protecting your business from large debts, especially those of major clients or ongoing work, is worth the expense. Find out if your clients have the capacity to service any invoices or credit you issue, and whether they are generally well thought of by other businesses they have dealt with.

5. Establish Open Communication

Make yourself as approachable as possible and let customers know they can always come to you if they foresee an issue with work or invoices. Not only does this mean you’re less likely to be left holding a bad debt, but it’s also good for client relationships and it gives you both a chance to find an agreeable solution other than non-payment.

6. Keep Clear Records

Having a clear and easily accessible record of all estimates, invoices and payments is the best way to avoid any miscommunication or misunderstandings. Most business accounting tools allow you to issue and track invoices and payments, but a simple spreadsheet can also be used for the task as long as you are diligent about updating it.

6. Seek Help From A Debt Collector

Even if your business has taken every precaution against incurring unnecessary debt, the risk will still remain. Should the worst happen, it’s often best to seek help from a professional debt collector. The team at Dynamic Commercial Collections can help recover your money and save you the hassle of having to follow the issue up personally. If you would like more information about our services or how we handle collections, please don’t hesitate to get in touch with us today.