Business owners wish to lower their costs of bad debt collection. I spend a good deal of time speaking with my customers about collection agency rates – how to evaluate which services are or are not included – when looking to hire a collection agency. Although it is very important to get a competitive rate, it is just as important to look at other effects of bad debt in your business.

Loss of Time: How much of your time is spent chasing delinquent customers? Could you spend that time growing your business? Coming up with new product ideas? Training or mentoring staff?

Loss of Opportunity: A recent study  examined the negative impact of unpaid invoices on hiring employees, buying new equipment, or expanding into new product lines.

Loss of Personal Income: When you do not get paid, you still must pay your creditors. In this case, who doesn’t get paid? You don’t. Small business owners will forego their own salaries first in a cash flow pinch.

Loss of Creditworthiness – If you are not getting paid, you may not be able to pay your creditors, and your ability to borrow or obtain credit terms will certainly suffer.

Loss of Competitive Edge: Several of my clients have stopped granting credit because they do not want the risk of not getting paid. By doing so, they have put themselves at a competitive disadvantage. Customers who need payment terms will go find them elsewhere.

Loss of Joy: Chasing bad debt can be confrontational. There are happier ways to spend your business day. You sell your product or provide your service with the expectation of getting paid, and it is demoralizing when you do not.

You have a right to be paid for the work you do. Like any right, you should protect it, and there are many simple things you can do to reduce bad debt in your business. Make sure to gather enough information on your customers so that you can decide how much credit to extend them. Confirm terms and conditions, including how and when you expect to be paid, in writing. Make it easy for people to pay you by accepting credit cards or using an online payment portal. Offer discounts for prompt payments. Stay on top of the aging of your receivables and follow up with delinquent customers regularly. Know when it is time to bring in your collection agency.

Bad debt will cost you. You can and should do everything in your power to limit its cost.