From inception until the point the business reaches creditability in the market, selling products on credit is inevitable, especially if the business is a wholesaler or the producing unit. In retail, all selling to the customer is done on a cash or instant payment basis. But some companies will extend credit, which can lead to delays in receiving payments and result in debt. Wholesalers or manufacturers who extend credit need to ensure that the receivable cycle matches the payable cycle. It is also a good idea to reduce the payment terms of accounts receivable to 30 days.
Before selling any of the products to the buyer on credit, it would be prudent to run a credit check. This will provide comfort in the decision-making process, and the owner will know that the payment against the product will be on time or as per the commitment. You must write out an agreement, so the terms and conditions are clear. It is a good idea to seek the help of an attorney to assist in drawing up a standard agreement with terms and conditions. This will ensure all bases are covered.
If the owner has a website, publish the content of the agreement and terms and condition on the home page. Furthermore, whenever the delivery order is issued, always incorporate a clause that the title of the goods is not transferred to the buyer until full and final receipt of payment. Furthermore, the government gives the company the liberty to have incurred any late payment charges from the buyer.
Your business must be familiar with the purchasing individual or company to which you are extending credit. The owner should have hands-on knowledge of key personnel in the company, whether the person is the owner of the firm or an employee working in the accounts and finance departments. These accountants and financial managers are the elemental people to raise a red flag and also responsible for providing timely payments.
When the delivery order is issued, instantly issue the invoice and chase the payment at least 15 days before the due date. In proactive management, the pursuit of payments guarantees on-time payment, stable account receivable, and at the same time, reducing the probability of late payment.
If the buyer already has an existing payment mechanism, such as the frequency of the payment is either monthly, fortnightly, twice-monthly, or quarterly, then set the credit terms accordingly. If the buyer is significant, it will not negotiate or deviate from its existing payment system mechanism. Therefore, the owner needs to realign the credit terms of accounts receivables accordingly.
Keep in regular contact with the buyer, either by phone or email, when the payment approaches the due date, but please avoid any fluster. Be courteous and reassure that the contact is being made as a reminder.
If any problem or dispute does creep up, such as product not as per specification, etc., try to resolve it as quickly as possible. This is imperative as it will assure that the accounts receivable will not go into overdue or bad debt.
When it comes to the non-negotiable situation, seek assistance from some recovery agency or lawyers. Always try to control the size of account receivable properly and maintain a good tracking history of the past payment. These are a few practical ways of account receivable management and preventing and causing bad debt.
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