What are the best ways to prevent non-payment by customers?

Non-payment by customers can have a serious impact on your cash flow, profitability, and reputation. As a corporate accountant, you need to implement effective strategies to prevent or minimize this risk. In this article, we will discuss some of the best ways to prevent non-payment by customers, such as:

1 Credit checks

Before you extend credit to a new or existing customer, you should conduct a thorough credit check to assess their financial situation, payment history, and credit score. This will help you determine their creditworthiness and ability to pay on time. You can use various sources of information, such as credit reports, trade references, bank statements, and industry databases, to verify their identity and credit status.

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2 Clear terms and conditions

Another way to prevent non-payment by customers is to establish clear and consistent terms and conditions for your invoicing and payment processes. You should communicate these terms and conditions to your customers in writing, preferably in a signed contract or agreement. Some of the key elements to include are the payment due date, the accepted payment methods, the late payment fees, the interest charges, the dispute resolution procedures, and the consequences of non-payment.

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CA Ravi Thanki

I practice audit and assurance, financial reporting, and tax compliance.
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Before the inception of the engagement, service proposal should contain payment terms like 50% advance and 50% balance upon communicating first draft deliverables. The same is agreed by the clients.

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3 Prompt invoicing

To ensure timely payment by your customers, you should send your invoices as soon as possible after delivering your goods or services. This will reduce the chances of your invoice being forgotten, misplaced, or disputed by your customers. You should also make sure that your invoices are accurate, detailed, and professional, with clear references to the terms and conditions, the payment instructions, and the contact information.

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CA Ravi Thanki

I practice audit and assurance, financial reporting, and tax compliance.
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Standards set of process to be developed and communicated to the staff through training. Process should clearly make the staff understand to raise the invoice immediately once the services has been provided depending on the payment terms agreed with client. The invoice communication to client should also disclosed bank details to avoid unnecessary time spend in obtaining the details later.

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4 Follow-up reminders

Sometimes, your customers may need a gentle reminder to pay their invoices on time. You can use various methods, such as phone calls, emails, letters, or texts, to follow up with your customers before and after the due date. You should keep a record of your communication and use a polite and friendly tone. You can also offer incentives, such as discounts or rewards, for early or prompt payment, or penalties, such as late fees or interest charges, for delayed or missed payment.

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CA Ravi Thanki

I practice audit and assurance, financial reporting, and tax compliance.
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Weekly follow up reminders can be communicated through email and phone calls. The email should contain the statement of accounts and outstanding invoices along with the bank details.

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5 Alternative payment options

Another way to prevent non-payment by customers is to provide them with alternative payment options that suit their preferences and circumstances. For example, you can offer them installment plans, partial payments, or deferred payments, if they are facing cash flow problems or financial difficulties. You can also accept different payment methods, such as credit cards, online transfers, or mobile payments, to make it easier and more convenient for them to pay.

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6 Legal action

If none of the above methods work, and your customers still fail to pay their invoices, you may have to resort to legal action to recover your money. This can involve sending a formal demand letter, hiring a debt collection agency, filing a lawsuit, or enforcing a lien. However, legal action can be costly, time-consuming, and damaging to your customer relationship, so you should only use it as a last resort.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Andre Bodo Bekada

accounting taxation audit
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another way of preventing the risk of non-payment and the most effective for me consists of requiring the latter to draw Bank guarantees such as SBLC, LC. If the client does not pay us his Bank which issued the guarantee make the payment.

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What are the best ways to prevent non-payment by customers?

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1 Credit checks

2 Clear terms and conditions

3 Prompt invoicing

4 Follow-up reminders

5 Alternative payment options

6 Legal action

7 Here’s what else to consider

Corporate Accounting

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