There are several practical steps that can help to protect your business from a bad debt. A simple credit check of a new customer can provide a useful barometer of their financial situation and help you to determine terms of business with realistic credit limits. These can be adjusted, by agreement, once a relationship is established and a customer demonstrates a reliable payment schedule.

While a credit score will be a good indicator of a client’s financial performance, it’s also worth spending a little time researching the company you are going to work with – a simple search of the company’s directors may reveal involvement in other businesses and their financial performance which may have a bearing on your confidence in trading with them. In some instances, you might consider asking for several trade references and checking these to ensure that there have been no payment issues in the past.

Agree payment terms, including how frequently you will invoice and how quickly you can expect to receive funds – a common scenario is that a company will send an invoice with short payment terms that do not marry with a client’s monthly payment run, and be frustrated by a lack of response. Be sure that your business can withstand an extended payment period, and that this will not impact on other aspects of your day-to-day operations such as paying wages and covering material costs. Conversely, a client may be willing to pay more quickly in return for a discount so it might be worth negotiating this in advance to agree and secure a regular, reliable cashflow.

A good tip is to invoice as soon as a product is delivered or service completed, as waiting until the end of a calendar month can inadvertently extend payment terms and create a bottleneck on cashflow with all invoices sent out and due at once. Ensure that invoices are addressed correctly to the relevant contact, using any required reference or purchase order, and sent to the correct address, digitally or by post as agreed with the client’s accounts department to minimise any potential obstacles to payment. Being told repeatedly that the invoice has been sent to the wrong contact can be frustrating and escalate timescales for payment. Email scams are becoming more commonplace and using a secure, digital accounting system to send invoices, reminders and statements can help to reduce the risk of this happening to your company.

Establish how money will be received, as anticipating an electronic transfer of funds but receiving a cheque can cause a further frustrating delay in getting cash in the bank. Keep an open dialogue so that you are able to chase late payment and if there is a problem you can address it promptly. If there is an issue, invariably it is best to speak directly with the appropriate contact at the client company, rather than send endless emails or statements which may be ignored.

While these issues are best addressed at the outset of a business relationship, the same principles apply to existing customers and, if approached diplomatically, can be presented as a new company credit control process to ensure that every client is working to the same terms. Debt recovery is a full-time business and if this is taking up significant amounts of your own or accounts department’s time, it may be worth outsourcing this to an external company.