Bad debts — customers who never pay — can sink a business even when sales are strong. Surviving them is about prevention, reserves and ruthless collections. Here is a practical survival framework.
Build a Cash Cushion
Keep 2–3 months of operating costs available. A cushion absorbs non-payment without forcing distress sales or loans.
Tighten Credit Terms
- Require deposits or upfront payment for high-risk clients.
- Set clear payment terms and enforce late fees.
- Credit-check larger customers.
Chase Early and Often
Invoice immediately, remind before due dates, and escalate quickly. A structured collections process recovers more than ad-hoc chasing.
Know When to Write Off
After genuine collection effort, decide if a debt is unrecoverable and write it off; holding 'zombie receivables' distorts your books and energy.
Diversify to Survive
Concentration in one customer is a risk: if they fail to pay, you are exposed. Spread revenue across customers and products.
FAQ
How much bad debt is acceptable?
It depends on margins; low-margin businesses cannot absorb much, so aim near zero.
Should I use a debt collector?
For larger balances, collectors or recovery agents are worth it after internal attempts.
Related: Debt Recovery Agencies and Emergency Funds.