Proper management of your credit schemes is critical to the success of your growing construction company. In general, your business can benefit from providing services to clients on credit because it encourages the customers to sign contracts and spend more. However, if your credit system is not managed well, you will end up with multiple bad debts. The financial consequences of unpaid debts can be dire, and you might even be forced to shut down your operation. If you are struggling with credit management and bad debts, you should use the below-outlined tips to achieve positive, long-term results.
Establish a Credit Control System
You should review your credit control system and make sure that it is working as expected. Limiting credit and improving your practices can prevent most bad debts. Consequently, you will avoid inconveniences and cash flow problems. Ideally, you should have a credit application form for your construction operation. The document should include your terms and conditions of trading in credit to avoid confusion in the future. This form should be reviewed by a qualified lawyer to ensure that it covers critical issues for legal purposes. If necessary, the agreement can be used in court action to allow the recovery of debt.
Avoid Offering Credit
The most reliable way to prevent bad debts in your construction business is never to offer services and goods on credit. You might lose some clients in the future, but you will avoid crippling the cash flow in your company. Also, there are some alternative practices which can reduce the total amount of debt owed to your business. For example, you can ask for a large upfront deposit from your clients before providing your construction services. If you are selling building materials or equipment, you should insist on cash on delivery, especially for new clients. You should also consider having the customers give progress payments, particularly for long-term projects.
Invoice and Follow Up
You should always prepare invoices as promptly as possible and make time for follow-ups if you offer credit to clients. Invoices are critical because they will remind the customer of their debt and serve as a record. When following up, you should be consistent and persistent. Speak to the concerned business or individual directly, send regular reminders and keep detailed records of your communications.
Construction debt recovery can be a difficult process for your young business. Therefore, if you are experiencing challenges in handling your debtors, you should think about hiring a qualified debt collection expert for professional assistance.
