The Risk of Bad Debts
Bad debts are uncollectible debts that can cause your business to suffer destabilizing effects, but bad debts can be controlled by minimizing risk and planning for loss. Bad debts are a fact of business, fortunately, there are things you can do to reduce your risk and protect your business.
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Insurance
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Consider investing in bad debt or credit insurance. If 80 percent of your business income comes from 20 percent of your credit accounts, credit insurance can give your business a degree of bad debt protection.
Communication
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Chargebacks happen when customers are surprised by interest and fees charged to their account. Avoid losing the revenue from interest and fees by making sure customers understand all of the terms of their credit account.
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Responsibility
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Assign someone responsibility for bad debt collections. Things can get lost in the daily work of business, and having someone responsible for collections will ensure that it gets done.
Collections
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Hiring a collection agency may be beneficial if you have many bad debts or no one to follow up on past due accounts.
Incentives
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Give customers every incentive to pay early. Offer discounts of 1 or 2 percent off the monthly statement balance if accounts are paid within 10 days.
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References
Resources
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