Credit Control procedure to reduce bad debt

There are a number of ways in which you can reduce the level of your business’ debt and this article looks at some of these.

Know your customer

When you enter into a trading relationship with a new customer or client it is a good idea to find out as much as you can about them.

Who is your customer?

You should try to establish whether your customer or client is a sole trader/ an individual, a partnership, a limited company or another type of organisation and make sure that you are satisfied as to their correct and full name. Quite often businesses operate under a trading name and it is not always immediately clear what the legal status and correct identity of the business is.

In the first instance it may be sensible to seek clarification from your customer or client and then take steps to verify that the information provided to you is correct. This may be by asking to see a copy of your customer or client’s letterhead, which should (but does not always) clarify their name and legal status. Basic information about limited companies and limited liability partnerships (LLPs) such as their name, address of their registered office and date of incorporation can be obtained free of charge from Companies House.

If your customer or client is a sole trader you should try and obtain details of their home address as well as their business address. If your customer or client is a partnership you should establish who are the partners in the business and ideally obtain details of their home addresses.

In some instances it may be necessary to check whether an individual has the authority to authorise expenditure or enter into a contract with you on behalf of their employer.

Contact details

It is a good idea to obtain details of your customer or client’s postal address, email address, telephone and fax numbers to ensure that you can contact them as easily as possible. The easier it is to contact them the easier it will be to chase any outstanding debts.

When dealing with a large business it is advisable to obtain details of the person placing the order, any reference number they may use and obtain clarification as to where your invoices should be sent. Many large organisations have central accounts departments and may insist on you providing them with an order number or purchase order document before they are able to authorise payment of your invoices.

The financial position of your customer

It is a good idea to make enquiries as to your customer or client’s financial position in order to satisfy yourself that they have the financial resources to pay your invoices. This may be by carrying out a credit check or, in the case of limited companies and limited liability partnerships, obtaining a copy of their accounts from Companies House (a fee is payable).

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For more information on:

  • Ensure that clear terms are agreed
  • Credit
  • Chasing debts