How to Prevent Bad Debts in 2023. Tips from a Debt Collector

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How to Prevent Bad Debts in 2023. Tips from a Debt Collector  

Credit control and debt collection are the two most crucial components of sustaining a solid cash flow since, as they say, cash is king. Here are some suggestions for proactive steps that may take to improve your credit control and, ideally, avoid having to deal with debt collection. It can serve as a jumping off point for the company to create a framework for preventing bad debts in the first place. 

Pick your clients wisely. 

Establish long-lasting connections. The optimal and most effective course of prevention is payment in advance or at the time that goods or services are supplied.

However, for a variety of reasons, including the following, this option is not always available: 

  • If this was enforced, the client would use a competitor.
  • The client might not have the cash on hand to pay right away (this is a concern in the construction sector where milestone payments are typical or in the rural / farming sector where income is dependant on seasonal crop harvesting). 

Compared to ten years ago, consumers are much more used to paying in advance in the current market. The ability of e-commerce websites (like and to alter consumer behaviour is outstanding. Today, professionals carrying mobile EFTPOS machines and accepting payment after completing services include plumbers and electricians.

Take advantage of this shift in consumer behaviour when ever possible, but refrain from extending credit. 

Put the appropriate procedures in place before extending credit.

Before they provide credit, have a look at what institutions with expertise, like banks do. Apply the company’s context to a credit application form to determine how much information is needed. This will depend on how much risk it has associated with each individual client.

Make sure to have a credit application form at the very least, and always ask for director’s guarantees. If it does actually reach the level of collection, they are “gold.”

Perform due diligence. 

Following receipt of a credit application form, take the following actions:

  • An ABN lookup.
  • An enterprise search.
  • Lookup of Credit Reporting Authorities (such as Veda or Dun & Bradstreet).
  • A background check on any anyone offering a guarantee.
  • Examine the credit applications’ repayment capacity (Consider this for large debts and seek financial information such as tax returns, assets and liabilities including bank statements).

The number of searches and information checks conducted will depend on how much danger someone is willing to take. 

When possible, use the Personal Property Security Register (PPSR).

Use the Personal Property Security Register if supplying items with a high value (PPSR). Have the right to retrieve the products if “perfected” the security but did not get paid. As a result, it is significantly safer than an unsecured creditor in the case of insolvency. 

Do you employ a credit management system? Put systems and procedures in place for debt collection and credit control.

Set up credit control and debt collection processes for each of these profiles based on the various client profiles:

  • Have approved templates for letters, faxes, emails, and SMSs available.
  • If necessary, have phone scripts on hand.
  • Establish deadlines for particular actions to occur during the collection cycle.
  • Check to see if  it has a specific resource in place to handle credit control and debt collection.
  • Regularly evaluate the past-due accounts and improve the procedures. Making sure all these procedures are followed will give it a great head start in ensuring strong, consistent cash flow, and it might even avoid the need for debt collection services. 

Do you want to learn more about how Debt Recoveries Australia can assist you with your invoicing and debt collection issues? Please contact us at or 1300 799 511. You can also contact us via Skype at debtrecoveries. 


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