Well dependent upon the business within which you are engaged it may be the case as certain industries appear to encounter bad debts more than others. However the extent to which bad debts are a fact of your life will depend upon your attitude to extending credit to your customers.

For many of us we suffer bad debts without much thought until the debt really hurts or when we suspect misconduct by the party who has caused our loss.

However, it does seem that many of us trade with people at some point who appear incapable of distinguishing us from a bank. This is of course notwithstanding that very few of us have a banking licence. So why do some of our customers or clients treat us as if we have one?

It boils down to perceptions of what is normal business practice.

The problem arising from this (which can be poor credit management) is that we may get drawn into a cycle of acting like our customers, unless we have the cash flow to support an alternative approach. For many of us if our customers take 60 days instead of 30 to pay us then we may need 60 days to pay our suppliers. If this becomes a significant problem for us then we may get drawn into a cycle that could leave us without supplies to our business in the short term and even lead unintentionally in the longer term to wrongful trading should our business fail for any reason.

The question is – are customers who stretch our terms of credit worthwhile keeping? If you can afford to retain such customers because such trading is profitable then no doubt you may not be overly concerned. However, for many of us it is done because we are concerned to let the customer go elsewhere and lose their business. We sometimes overlook that the cost of a slower payer is not just the cost of the extra banking facility we need to support slow payers but also the time and costs associated with chasing such customers for money.

My message is chose your customers carefully. Spot those warning signs when slow payers first appear on your radar and take the appropriate action for the circumstances immediately not when it is too late.

This entry was posted on Wednesday, March 10th, 2010 at 8:55 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.