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This is the best way to avoid your company getting into bad debt

by , 18 August 2014
Bad debt can destroy your company. It can force you into liquidation and that could spell the end of your business.

You can avoid this though just by being more careful about who you give credit to. After all, if you give credit to everyone, you don't know who's going to disappear without paying you a cent.

So when it comes to keeping your company's finances in the black. Here's what you need to do...

 

You can avoid bad debt with one simple action

 
You must do a credit check on every new creditor or client that asks you for credit. This information is generally free and very easy to get.
 
It'll show you the client's records when it comes to paying back their debts and whether or not you can trust them to pay you.
 
If you check a new client's credit record and they have a bad history, don't give them credit.
 
But what do you do if this client only has an average credit history?
 
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Here's how to avoid bad debt from clients with an average credit history

 
If you're not entirely sure about whether or not you can trust a new client, put controls in place to ensure you get your money back.
 
For example, the Practical Accountancy Loose Leaf Service suggests you ask a shareholder in the client's company to act as surety. This means if the client defaults on his payment, you can claim the money from the shareholder.
 
Also be clear about your payment dates and get the client to sign a contract stating he'll pay you back within a certain time frame. This way you have some legal recourse if he doesn't pay you.
 
Just remember to be very careful about who you give credit to so you can avoid developing a bad debt problem.
 

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