Skip to content

5 Credit and Payment Strategies to Help Suppliers Avoid Bad Debt

colleagues in discussion over a drawing

It’s not uncommon for retailers to ask for additional time to pay their invoices. However, if retailers can’t pay, that puts bad debt on suppliers’ books. Research shows that more than one-third (36 percent) of accounts receivables (A/R) departments write off up to 25 percent of their receivables as bad debt each year.

During an economic recession, suppliers are in an even more precarious position: retail revenue is down, and retailers may be more likely to lapse on payment terms in the months ahead, passing along large amounts of bad debt to their suppliers.

To limit this risk, suppliers of all sizes should consider the following strategies:

1. Thoroughly vet new retailers.

Complete thorough credit and business checks using trustworthy, third-party resources like Experian, Transunion, Equifax, and others. In addition to these sources, use insights from both current and predictive customer data that can reveal how a retailer’s business financials have been impacted and for how long revenue may be affected. Then, widen the scope and examine industry data for a more comprehensive view of the retailer’s financial health. Together, these methods accurately assess your customer’s ability to keep invoices current and mitigate the risk of fraudulent activity.

2. Rightsize credit lines.

Review customer credit lines. If the credit line is far in excess of monthly purchasing requirements, reduce it. This prevents retailers from overextending and encourages prioritizing payments to keep balances low — reducing days sales outstanding (DSO) without inhibiting purchasing. For example, if a customer qualifies for a $200,000 credit line and purchases less than $50,000 each month, offer a $100,000 credit line instead.

3. Create and enforce strict payment terms.

Communicate clear payment terms and make them easy to find on your website or portal. You can also adjust payment terms if needed based on a customer’s payment history. To further encourage prompt payments, enforce penalties for late payments and reward those made on time. More importantly, stick to the terms you set. You can always review terms later once the retailer proves trustworthy or their financial situation improves.

4. Decrease disputes with accurate invoicing.

Thirty-nine percent of A/R teams said 26 percent or more of their late payments are due to a dispute. To limit disputes, make sure invoicing is prompt and accurate, and that line items, tax calculations, banking information and customer addresses are correctly listed. Sending, creating and receiving invoices manually introduces error, especially when A/R teams have a high percentage of unique customer billing requirements. If this is a recurring problem causing disputes, consider investing in A/R automation to reduce error.

5. Outsource A/R for high-value accounts.

A payments partner can handle all of the above strategies — assuming credit risk, extending credit on your behalf, performing thorough credit checks, and offering digital invoicing options. This not only reduces the risk to working capital should retailers fail to pay, but frees up time for your A/R team to focus in other areas. Even more, an added layer of top-tier customer service provided by a partner can expertly guide high-value customers through the payments process.

As a supplier, maintaining customer loyalty and encouraging repeat purchases is critical — but so is protecting your bottom line. These five strategies can help you achieve that mission and keep finances secure. Bad debt is always a risk when extending terms, but if managed well, you limit that risk and take better advantage of the benefits of net terms.

Related story: Cart Abandonment Issues? It Might Be Your Outdated Payment Processes

Article originally posted on

Stay up-to-date with the latest from TreviPay