How To Prevent Debt Collection

So here is the situation, you extended credit to a new customer for a large amount.  You were excited to have the business, as any business would be, but you did not perform the due diligence.  Everything seemed to line up, they had a website and looked like a good company.  Now 30 to 60 days later, they have not payed and you are out the merchandise.  Sound familiar?  It is not a fun situation, but how do we rewind and prevent this mess from ever happening.

The first step in the whole equation is to perform some research on the company or individual.  There are many online credit reporting services that will perform a search.  This search will bring up any red flags.  These can be the signs that prevent you from getting yourself into a debt collection nightmare.  Some of these signs include: court judgments or summons, credit inquiries, and written off accounts.  These red flags should be forewarning that no credit should be extended to this customer.  If you are dealing with a troubled customer, then require them to pay cash or go elsewhere.  This may keep you from making a couple of sales, but will be well worth it in the long run.

I have known many customers who were doing good business with a customer for years and all of a sudden this trusted customer was unable to pay.  A big problem with this is that over time the amount of credit that is issued to a customer gets larger and larger.  If you have a good relationship with another business, then you will be more likely to extend larger terms of credit.  So how do you prevent this from becoming a trouble spot for your business?  It may seem like this is tough to prevent, but there are some key warning signs that can foreshadow impending financial trouble.

Some signs to look for with current customers are the payments coming in regularly?  If they are sliding from 30 days to 45 and so on, then this should be a red flag.  Then you need to tighten the terms of credit to protect yourself.  Is the company not paying in full?  If they are only making partial payments, then you need to be cautious.  Look for any changes in their payments, whether timing or size, because this can predict financial troubles.

Be on the look out for trouble spots before you make a sale and afterward.  Forewarned is forearmed.