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Follow these two steps to stop bad debt from ruining your company

by , 22 October 2014
Bad debt can slowly kill your company. With every person you give credit to, you run the risk of developing this deadly problem.

But how do you prevent this if you can't afford to just stop giving your clients credit.

You need to be extra careful, especially when you take on new clients. Follow these two steps to do just that...


Prevent a bad debt problem in your company by following these two steps

Step 1: Do a thorough credit check on every new client 
You can do credit checks online. It's easy and if you use reputable companies such as TransUnion, you'll get detailed results from the check.
This check will help you determine if this client will be able to pay you back or not.
If they have a history of defaulting on loans and payments, rather deny his credit application. Otherwise, you're just asking for trouble.
Only proceed to the next step if your client passes the credit check.
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This is the second step you must use before you give your client credit

Step 2: Make your client sign a legally binding contract
You must draw up a contract that says exactly when and how much your client must pay you back. Also include how he must pay you (monthly instalments or one lump sum payment).
This gives you legal recourse if your client defaults.
If he stops paying, you can take him to court and possibly attach some of his assets to recover the debt.
You can't do this is you don't have a legal backing to support your side of the story.
Follow these two steps to ensure you only give credit to clients that can pay you back. This is the best way to ensure you never develop a bad debt problem that could ruin your company.
For more advice on how to deal with bad debt, check out the Practical Accountancy Loose Leaf Service

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