Unpaid bills can be a serious burden for businesses.
For one thing they can have a serious negative impact on a company's treasury. Let them build up and you may struggle to meet your own payments, such as employee salaries, taxes, social charges or business expenses that are essential if a company is to function. Not taking rapid action can threaten the financial stability of a business.
Another potential negative consequence is the time that unpaid bills will make you waste on your accounting.
An unpaid bill can be one of the following:
- a doubtful debt is a debt that has gone unpaid for a long period of time and is likely to remain unpaid;
- a bad debt is one that will never be paid (for instance, a customer goes bankrupt).
These above kinds of debt need to be treated in a certain manner when entering them into your bookkeeping. For example, a bad debt needs to be justified by a certificate that proves the debt is unrecoverable. It's another headache you could do without.
So how can you avoid unpaid debts?
The key is prevention rather than cure.
Before taking on a new customer (and particularly if it's a big account) do a little digging to find out about their financial situation and solvency. You are well within your rights to:
- seek certified, key information about a company on the official Trade Register Companies. In this database you can find out about a potential customer's legal representative and statutes, its capital, turnover and profit statements. It's worth noting that some accounts may be subject to a confidentiality clause.
- ask the potential customer to provide you with written proof that they have no debts and respect payment deadlines.
If it's too late for such due diligence and you've already signed a contract, there are still options open to you if you're worried about whether a customer can pay what they owe.
- Start with an informal reminder. The debt might simply be a result of someone forgetting to pay or being off sick. It would be a shame to spoil good relations with a client over a misunderstanding.
- If this reminder goes unanswered, you can issue the debtor with a formal notice. In the majority of cases, such a letter is enough to unblock the situation.
- If that doesn't work, you can start taking legal action to recover the debt. When the amount owed is not too exorbitant, this will usually result in an order for payment procedure, which is relatively simple, quick and inexpensive.
Few people will tell you that accounting is fun (with all due respect to the CPAs out there - to each their own!). But it doesn't have to be such an ordeal. The tips above are designed to make the bookkeeping process smoother and more manageable. With the suitable organization in place and the adoption of modern tools designed specifically to help, you can save considerable time.
What you do with that time is your business and, ultimately, your business is what's most important to you. It's equally as important to Qonto, which is why we will continue to develop the tools and the partnerships that will help you stay on top of your accounting with expediency and efficiency.