Ways to reduce bad debts
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Ways to reduce bad debts
Bad debts or irrecoverable debts are important to a business because they impact the profitability. There may be a problem with bad debts or irrecoverable debts if they are frequent or rise significantly. Due to this risk there are several ways in which a business can reduce the bad debts. First of all, a background check can be carried out by the business to see whether the customer has a good or bad reputation for paying back debts. Secondly, new customers or those with poor credit ratings can make a deposit such as 10 or 20% of the invoice value and the remaining debt can be on credit. The third way is to offer incentives if the payment is made immediately with cash as this may reduce the amount of debt owed by customers. Incentives could be such as a free pair of socks if you buy a pair of shoes. The fourth way to reduce bad debts is to offer a discount off the initial price if payment is made before the credit period has finished and this is to encourage early payment. The fifth and final way is to ensure that the agreed credit days are clear and that reminders are sent leading up to the end of the credit period.
