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To avoid financial losses, watch out for these three debtor risks

by , 27 October 2014
When you lend someone money or give them goods or services on credit, there is always the danger your debtors might disappear and never pay you a cent of the money he owes.

The good news is you can avoid this from happening in your company.

All you have to do is watch out for certain risk areas and put appropriate controls in place.

These are three such risk areas to control...

 

Watch out for these three debtor risk areas

 
1. Recovering the debt – keep a close eye on the stragglers
Debt recovering measure to help you ensure you receive money from the debtor when it's due. 
 
This becomes more risky in times when the economy suffers, since cash flow problems will affect your clients and make them less likely to pay you. 
 
In these times, implement tighter controls to make sure you have a higher chance of recovering the money from your debtors. This means you'll have cash to settle with your creditors and pay your expenses as they fall due to you. 
 
A few months of slow debt recovery and your ability to continue running your business could suffer badly.
 
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2. Inaccurately recording the debt
You need to be accurate when you record the sales and related debtors to avoid incorrect balances. You could make bad decisions based on incorrect information.
 
3. Fraud/misappropriation
Misappropriation or fraud is most likely to happen when you receive money from debtors in cash. Watch out for staff members who allow high credit limits to unapproved clients. This allows inventory to be 'sold', but never paid for.
 
Watch out for these three risk areas that could drive your company into serious financial downfalls.
 
Check out the Practical Accountancy Loose Leaf Service for more information on debtor controls.
 


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