August 29, 2018 | Posted in:

How to Get a Handle on Bad Accounts

Some losses are inevitable when you decide to extend credit to your customers. That said, unless you are willing to forgo the credit part of your sales, you’re going to have to figure out ways to control your bad debt losses.

Zero in on problem accounts

Once you have extended credit to a customer, you have a stake in continuing the relationship even if you suspect there might be trouble in the near future. You don’t want to crack down on a good customer too hard too soon, yet you don’t want to be taken advantage of by someone who has become unable or is unwilling to pay. The problem is distinguishing between slow pay and no pay.

What you need is an early warning system to detect a credit problem in the making. This can help you stop additional sales to that customer and begin collection procedures in earnest. You can begin building this system by considering these signs that something may be amiss with an account:

  1. Erratic payments.

    The customer has begun paying erratically, settling up on smaller invoices while larger ones just get older, at the same time disputing specifications or terms.

  2. Poor communication.

    The customer fails to return your phone calls.

  3. Unavailable information.

    Your requests for updated financial information are ignored.

  4. Increased credit requests.

    The customer places jumbo orders and presses you for more credit.

Any one of these signs could be an indication that more account problems may be coming down the line. If you’re concerned about a client account, make it a point to speak to your client directly about the account. It may help clear up misunderstandings about payment expectations.

“Consider offering discounts on prompt payment, for example a 1% discount on payment within 10 days, referred to as “1%/10 net 30”. Your business can also adopt a policy of assessing interest on unpaid invoices outstanding after a certain period, generally 90 days.  This may incentivize your customers to pay quicker.” – Rich Middleton, CPA

“Businesses should review their accounts receivable aging report periodically to try to identify and doubtful accounts. If the doubtful account is truly bad, the receivable can be written off as bad debt expense to help clean up the receivables. It is better to keep an updated balance sheet so that you have a better idea of the receivables due to come in.” – Chris Cicalese, CPA


Having trouble with customers and accounts receivable? Consult with an Alloy Silverstein CPA for advice and guidance.



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