Although the tax law may provide some help in alleviating the financial loss of bad debts, a better approach is to avoid or limit the loss by taking action.
Review Credit Policies
To avoid bad debts, consider whether to eliminate or modify your credit policy. For example, instead of billing customers when work is completed or goods are shipped, have customers charge the payments to a credit card that you accept.
If, because of industry policy or personal preference, you want to continue to extend credit to customers, consider:
- Doing credit checks on customers. When extending credit for B2C, check a consumer's credit through the business services at 1 of the 3 major credit bureaus: Equifax (www.equifax.com), Experian (www.experian.com), and TransUnion (www.transunion.com). For B2B, check a business's credit at D&B (www.dnb.com).
- Limiting credit to customers. You do not have to extend the same terms to all customers.
- Billing wisely. Instead of billing at the completion of a job, bill at completion points along the way. Bill promptly (don't wait until the end of the month to send invoices). Send bills electronically to make sure they arrive promptly.
Review Collections Policies
The longer an account receivable goes unpaid, the less likely it becomes that you will receive full, or even any, payment. Make sure to stay on top of collections by monitoring receivables on a regular basis. Contact delinquent accounts to press for collections (work out payment terms ...