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In: Accounting

What are 2 specific areas a company must address in minimizing the likelihood of bad debts?...

What are 2 specific areas a company must address in minimizing the likelihood of bad debts? What methods would be used in this process?

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Answer :-

Two specific areas a company must address in minimizing the likelihood of bad debts are :

1. Choose your client carefully : you need to choose your clients carefully. Work with your sales department to create an ultimate profile of the perfect client for you and then only take on those clients you want to work with. Once you have chosen your client, conduct credit reports/searches on the company and the directors. Check their websites, social media sites. Ring their clients and ask them about your potential clients. Look for red flags in their finance department and see how much you can learn about their financial health before you do business with them.

2. Money upfront : In my opinion, by asking for money up front, you are sending a strong message to your customer that you are serious about your services and serious about payment. They will respect you for it.

Methods used in this process of minimizing bad debts are :

1. Accurate Processes for Payment and Follow Up with the client

2. Set Your Payment Terms and Penalties

3. Fix Disputes Quickly

4. Invoice properly

5. Offer incentives for early payers.


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