Make 2022 the Year You Get Rid of Bad Debt

RCS Influencer Thea Dudley says that you should head into the new year by learning from your collection mistakes in 2021.  

Ahhh the holidays. Holiday parties, good cheer, gifts, goodwill to everyone.  As the year comes to a close and we get ready to welcome 2022 most people reflect on how the year went and excitement for what is to come. Unless you’re in the credit and collections side of the business world. 

To a credit person, the end of the year signals the accounts receivable review for bad debt write offs. Bad debt, the gift that keeps giving. Not only did you trust your customer to pay you, they didn’t, but you were gifted the added bonus of paying for the materials and labor. Woot woot!     

The holidays bring a reflection of what happened in your business in a way most business owners don’t take a hard look at, if at all. The bad debt. What can be learned and what how can that knowledge be leveraged going into the new year?   

Take a hard look at what and who you are writing off. What do these accounts have in common? Owner interference? Going against the advice of your credit person or even your gut feeling? Not using lien rights when you should have? What commonalities do your bad debt write off accounts share?   

Did the bad debt come from lack of checking out who you were doing business with, not running a credit check prior to committing your company’s resources. Maybe you signed a contract that you didn't read as diligently as you should have and committed to pay when pay, pay if pay, waiving lien rights, not adding a price escalation clause or a host of other seemingly harmless until, well, until they aren’t.   

Did you allow additional terms? Didn’t invoice on time or correctly? Did you forget to call and ask where your payment was, how about following up on promises to pay? All those factors contribute to bad debt. They all can be avoided or seriously curtailed.  

Armed with the knowledge of how some of your hard-earned profits got away, you can move into 2022 ready to grow your business with newly acquired data that you can use to avoid falling into the same pitfalls just by making some adjustments. Nothing crazy. Simple credit and collections best practices: 

1 - Check out who you are doing business with, either commercial or consumer credit reports. 

2 - Read those contracts. Don’t be afraid to cross out something that is harmful to your business. Substitute wording where you need to. 

3 - Invoice immediately and correctly. 

4 - Secure your mechanics lien rights. If you don’t know them, reach out for help (call me, we’ll talk). 

5 - Call for payments. 

6 - Follow up on promises of payment.   

Bad debt review is definitely not anyone’s idea of how to spend a holiday, however, the gift of insight and opportunity to alter the narrative for next year definitely is.   

Thea Dudley is an expert credit and collections officer, having spent 30 years in the construction field working for contractors and distributors. See her  full bio here.