How to avoid accumulating bad debt
Of course, the best policy for any business is to avoid getting into situations that require a collection agency. There are several ways you can reduce your outstanding bad debts:
Be careful when offering credit
Carefully check credit references of each new account and don't extend more credit than the firm can handle.
Explain transaction terms thoroughly
Make sure your accounts know when you expect payment, and clearly detail any credits or penalties for early or late payment.
Follow up overdue accounts
Don't expect customers to police themselves; instead, make sure to promptly send statements and reminders of payment due dates.
Institute a series of overdue notices
You should schedule regular written and oral reminders before even considering a collection agency. This will not only help save money, but will also avoid the ill will that can be generated when using a third party to collect the funds.
Set an absolute due date and stick to it
As a final step, set an absolute due date before the account is turned over to a collection agency. Don't extend the deadline, but do give the debtor warning of this final payment date.