More often than not, businesses tend to agree on dealing with customers who later turn out to be bad debt. While this practice is pretty much common, irrespective of which market the business operates in, recovering an outstanding balance becomes even more tough when you have receivables from around the world.
Eventually you are then left to deal with debt collection laws which vary from country to country and there are further complexities involved which can make the scenario almost near to impossible if the customer ignores the reminders of payment or deliberately holds the balance.
Hence, to help you in the process, we have come up with certain checks which you should perform; first before offering credit and then for international debt collection if you have sold the goods already.
Personally, we would highly recommend you to go through all the details listed below, even if you are stuck in the collection phase because this guide will definitely help you in preventing you from making such a mistake another time.
Things to Do Before Offering Credit
Hire A Credit Checking Agency
- If you want to be sure about whether your invoices will be paid later or not, then you must perform credit checks for your potential and existing clients. In case of Limited companies, there is no permission required to carry out the check, but if you are going to deal with a sole trader, then you will be bound to take the permission as such searches are then registered on their credit file and may even have an impact on their credit rating.
- Doing the check is beneficial for a number of reasons that are inter-related to the company’s or individuals financial position. You get to see the credit rating, net worth of the company, any floating charges to the bank, if the director has any other directorships and whether there are any court orders against the management or the company.
- Every country has credit checking agencies that can offer your business such services for a small fee. But in the scenario of international debt collections, we would recommend you to go for the top multinational agency as they specialize in dealing with the debt collection laws of the respective countries while also ensuring trust.
Ask Client to Fill the Credit Application Form
Making the client fill the form can help you a great deal in catching the client later as the form usually includes details like the business name, home addresses, mobile and landline numbers, references from other suppliers within their country and also the bank details.
With that, you also have the option of asking for a basic Personal Guarantee which basically means that if the company goes into liquidation, directors would be liable to pay from their own pockets. While all of such details can turn out to be really valuable for your own credit control, you will also need to instruct a debt collector or solicitor who can recover your account for you during the times of trouble.
Check References Thoroughly
- Asking for references and following them later is a must. This should be done in order to make sure that you are not being supplied with bogus references. All you have to do is do a simple internet search and see whether the referees have a good presence on the web or not with all thre genuine details.
- If they have a website, it is your job to make sure that everything mentioned on it makes sense. Besides that, you must also match the telephone numbers given on the website with the ones that are written on your credit application form?
- In case, if you decide to call, don’t be shy to ask questions such as for how long have they been trading with your new potential client? You can also ask for the directors name or have there been any issues in the past when it comes to debt collection? How much does the client pay the reference in a month? While gathering such information from a valid reference can take a bit of time but it will definitely save you from the problem of facing fraud or bad debt in times to come.
Dealing with Bad Debt
Know If It’s Bad Debt or Late Payment
Before you begin to chase the payment, it is important for you to know the reason behind not being paid. There are times when clients face financial difficulty or cash flow issues. So, before you make an assumption, you can begin with asking other suppliers about whether they have been paid or not. There are also business forums that can provide you with such intelligence.
Another important thing you have to keep in mind is to chase the debt on time. You can begin asking the client after 60 days from your invoice date and do not waste more time on the credit control processes. If your first letters, emails or phone calls didn’t work, chances are that they won’t work the other times as well. You should consider it a bad debt and begin with your process of recovery.
Lawyers or Debt Collectors?
This all depends on the scenario. While lawyers can help you in giving that final warning to recover the money, the cost of going with a solicitor can sometimes not be beneficial as compared to the money owed. Debt collectors on the other hand charge less fee and they know all the tricks to put pressure on the client and recover your money from them.
So, in case, if you have the budget to afford a lawyer and you think that your client doesn’t have any plans of paying you in time, you can always go with a lawyer. But if your business cannot afford this luxury because of budget constraints or you think your client will pay you after clearing their financial issues then debt collection agency is a safe option as well.
Now that you are well aware of what choices to make, we hope you make the right call or at least the one that is best for your business and cashflow.