Identifying bad debt is not as easy as it sounds. But the earlier it is done, the better are chances of recovering it. Here are some signs of customer behavior that can identify bad debt early:

Customer fails to pay as per the agreed payment terms.

Customer makes repeated unrealistic complaints about the product or service quality whenever asked about the payment.

Customer continuously asks for more time to pay debts.

Customer`s contact person is not traceable whenever you call for debt collection.

Your phone calls and/or letters are not answered.

Apart from these, you also have to keep an eye on customers who constantly pay late. Ongoing communication between the sales and finance departments can go long way in preventing bad debts.

Keeping track of market sources such as magazines, other customers, and suppliers will also help you identify customers who are not in healthy financial condition and help you recover your dues from them at the early stage.

Bad Debt Recovery

Once you identify the bad debt, the first step is to make attempts yourself to recover it in-house. This way you can maintain a relationship with the defaulting clients. It also helps you create documentation and evidence to show that you have made enough attempts to recover the dues. If the collection staff has knowledge of the Fair Debt Collection Practices Act and experience in debt collection, some of the debt can be recovered easily.

But an in-house staff is not always sufficient. If the defaulting customer doesn`t pay any attention to your repeated efforts, it is advisable to refer the case to a professional collection agency. These collection agencies are often well equipped to trace and deal with delinquent customers and bad debt recovery. But you need to make sure that the collection agency you are working with meticulously follows the Fair Debt Collection Practices Act and doesn`t step beyond legal boundaries. Remember that the collection agency is representing you, and you don`t want it to get you in trouble with the law.

Also make sure that you give all necessary data to your collection agency on all cases referred to them. It is also important to let them know how important each case is to you so they can apply different techniques to different cases.