How to Prevent bad dept as per ISO 9001

Know the cost of material.

Don’t just be familiar with your numbers—know them. Knowing them means that you know the cost of each of your raw materials, labor, rent or lease costs, and everything else. Do you know what each item costs down to the penny? Do you know the interest rate on each of your debts? If you don’t, you’re probably paying too much for something.

Increase your Margins.

Speaking of margins, each industry has its own benchmark for what is considered strong margins. Do you know yours? Check with your industry trade group, but once you know it, make adjustments. You can raise your prices, lower your costs, or both. The goal should be to raise margins without raising your overhead expenses. What are others charging for the same item? Can you purchase more at a significantly lower cost without losing the savings to debt service?

Watch your Inventory.

Like your refrigerator at home, some items tend to linger. Don’t put off ordering more of your popular inventory but look for the product that isn’t selling and liquidate it.

Inventory is probably where most of your money is tied up. You’re probably paying interest on that stale inventory that everybody forgot about. Don’t let it sit in your store unnoticed. Even if you move it at cost or for a small loss, liquidating is better than keeping the money tied up. Sell it online—eBay or Craigslist, for example.

Credit check new customers

Assessing the creditworthiness of new customers before you offer any credit is an important part of the process, and you can carry out credit checks online. You should also ask for trade or bank references from new customers. Credit checking existing customers is also a good idea given their financial position could change quickly, and you won’t necessarily be aware.

State your terms and conditions clearly on business documentation

Clearly stating your terms and conditions for trading, including when invoices become due and the fact that you’ll charge interest on late payments if necessary, establishes firm boundaries for business. These terms and conditions should be advertised on your website, and included on all relevant documentation.

Send invoices quickly

Make sure to send invoices out as soon as you’ve delivered the service or product, and also check the address you’re using is correct. Invoicing only at the end of a month introduces a delay that takes away the urgency of payment and could influence debtors to either pay late or not at all.

Follow up with phone calls to a specified contact

Rather than simply sending reminder after reminder through the post or via email, find out the best contact in your debtor’s business and try to deal with them. It becomes a more personal process and you can sometimes find out if your debtor’s financial situation has declined by talking to a member of staff. Maybe they’re struggling to pay all their creditors, for example, and you can take action such as reducing their credit limit to prevent further bad debts.


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