The bad debts can incur huge losses to a company. But, it is a great idea that you should prevent your company from bad debt in the first place. But how is it possible? What kind of tools should you use? It is imperative to use the right kind of tools such as accounts receivable software to reduce bad debts in the first place. Here, in this article, we are going to share some tips and tricks to prevent your business from bad debts. You should implement the following tips:

1. Wisely Choose Your Clients

Well, this may sound obvious, but you should only a few business owners follow this rule. It is recommended that you should not choose any client with the idea that your business will expand. Always keep in mind that bad customers can bring down your business. Therefore, you should choose the right clients or customers for your business.  

The best way to find out the right clients is to work with your sales department to create a list of various clients that are profitable for your company. It will help you to get only those clients that are good for your company, and you can work with them for long. 

2. Stringent Rules For Optimum Control

If you have selected the right clients for your business, then you should thoroughly examine their previous credit history and financial status. The stringent rules and regulations act as the first line of defense and help the company to avoid bad debts. Also, you should keep check on the payable amount. It is possible with the help of accounts payable software. 

3. Ask For Upfront Money Upfront

The upfront money will give assure you that your money is safe. Therefore, you should ask your customers to provide upfront money before offering products or services to your customers. It sounds simple, but in reality, it is a very difficult task. Most customers are reluctant to pay upfront money to their customers. Therefore, most business owners do not want to ask for upfront money because they fear that they will lose their customers. 

 But, you should ask for upfront without any fear because it will also tell you whether your customers are serious about the products or services they are going to buy. Keep record of amount you have received and the amount you have to get after some time. It is possible with the help of the accounting software. 

4. Create Payment Rules & Penalties

You should set some rules and penalties for late payments. Otherwise, your customers will not be afraid of crossing the deadlines for payments. Therefore, it is recommended to set some clear and obvious payment rules and policies. According to the survey, the business owners who have created structured payment terms are likely to get paid early.  You should convey these terms and policies in advance so that you can avoid unwanted disputed with your customers. Do not forget to sign an agreement before starting a business with your client. You should mention these rules in all invoices. 

5. Do Not Forget To Take Follow-Up

All business owners expect to get paid at the right time. You should always stay in touch with your customers. It will help you to find out the reasons for the delayed payment. If any customer fails to make payment at the right time, then you should start taking the follow-up. You can send the reminder mail, message or you can make a phone call. It is imperative to start taking follow-up so that you can get to know the exact reason for the delay. If any customer is facing a problem due to cash flow, then you can give some time frame to make payment.  Some accounts receivable collections software also helps you to easily take follow up and keep record of them. 

6. Strictly Follow Terms & Conditions

You should stop working with those customers who fail to make payment at the right time. It is recommended that you should receive payment for your goods and services at the right time. The delayed payments can severely affect your business and increase the risk of going bankrupt. It is imperative to ensure that there is optimum cash flow in your business so that you do not face any problem. The delayed payments from the customers increase the risk of bad debts. If you want to prevent your business from bad debt, then you should stop supplying goods and services to your customers. The AR collection software also helps you to keep record of bad customers. 

7. Immediately Fix Disputes

It is recommended that you should resolve the disputes as soon as possible. Usually, the customers keep you busy in dispute and use these disputes as an excuse for late payments. It is sure that you will not get paid for the goods or services that you have delivered until the dispute is resolved. Once again, you should consider your terms and conditions that will help in improving your business. The best way to resolve the dispute is to reconsider the terms and conditions with this kind of customer. If you reconsider the rules and regulations, then you can quickly resolve the dispute.