While watching your favorite shows, you have most likely seen one or more characters request to put a pending balance on a tab. Promising to pay later works well between an establishment and individual if there exists a strong payment history. Many bar owners refuse to allow consumers to use this method because they do not believe they will receive any form of payment. Quite often, someone’s license or another type of identification acts as collateral until the customer pays the debt. When thinking of the lending industry, a substandard loan receives similar treatment. If you are a business owner, you should be wary of allowing customers to always pay on an account basis.
Requesting a Deposit Upfront
When it comes to business, you would like to think everyone has the intention of paying what they owe. However, this type of behavior cannot be determined until a business deal receives approval from two parties. If you are working with an external party, for example, it may be wise to request a downpayment as an act of good faith. This initial deposit acts as the party’s promise to pay once they receive the requested order. On the other hand, this initial deposit also keeps you accountable as well. Both parties now have skin in the game, and the deal can usually proceed as planned.
Allowing for Doubtful Accounts
Businesses who use traditional accounting practices have a chart of accounts for a wide variety of business scenarios. One account, in particular, is commonly referred to as an allowance for doubtful accounts. When a company no longer believes a customer or business will pay what they owe, the debt is written off as a bad debt expense. Business is an unpredictable landscape, and it can never be sure if you will receive payment for your services. However, it is best to remain optimistic and assume that the majority of your sales will favor both parties.