Prevent Having a Bad Debt with These 5 Tips

If all businesses functioned in such a way that they provided their customers with services and products only to end up not getting paid in the end, then there wouldn’t be any business running now, would there? The same goes for the lenders and lending companies. Most of the time you find consumers requesting for and getting loans from the lending companies then defaulting to repay the debt at the end of the day.

This is usually to the disadvantage of the lender and the borrower. But there are ways with which the lender can try to reduce and possibly eliminate these bad debts and refrain from handing out loans to high-risk consumers who will probably default to repay the loans back. Here are five easy steps you can follow as a lender to ensure you reduce or avoid having bad debts in your company.

1. Create a credit application

Lenders work just like banks. Which means that they also collect all information from their customers using credit applications. Credit application forms can be simple one-page documents which only collect the customer’s basic identification information and permission to investigate the customer’s credit. But you find that most companies usually use 2-page credit application documents to enable them to establish legal terms with their customers as well, which protects the vendor and the borrower as well whenever there are any payment problems.

2. Investigate your client’s creditworthiness

It is vital that you run a business credit report of your client to see if they have any tax liens, history of late payments, or judgments regarding repayments. Credit reports can be quite expensive, but subscription reports are very cheap and affordable and worth the effort to protect your business from falling prey to borrowers who are likely going to default repaying their loans. Also, going through this step will ensure you know the customers who pay their loans on time and have reasonable bank balances.

3. Properly document your transactions

It is vital that you always have all your documents and transaction lists in order and properly documented. Verbal or sloppy orders all create the opportunity for disputes and windows for non-payments. Ensure you properly document and store all proof of delivery until all payments are received.

4. Take special action whenever an invoice is 75 days past due

Whenever you notice an invoice running late, then this is sure cause for alarm and you know that something is wrong. Ensure you look into the matter and if there is a dispute, you need to take the necessary steps to try and resolve the matter with your borrower as continued time passage will only make it more difficult. Try and fix any issues regarding past due payments as soon as they go beyond your set limited time. Get enough information from your client and use that to decide whether or not to be patient or escalate matters.

5. Establish and follow collection procedures

One thing customers will quickly learn from lenders is who they don’t really need to pay on time. And if you are not clear and strict on the repayment and late payment matters, you might end up suffering a great deal in this prospect as well. Ensure you send accurate invoices reminding your clients of repayment matters and also immediately you offer them your services. Your clients need to know you don’t condone late repayments and appreciate timely loan payments.