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Outline two methods a business may use to minimise bad debts - Leaving Cert Business - Question 6 - 2017
Question 6
Outline two methods a business may use to minimise bad debts. (i) (ii)
Worked Solution & Example Answer:Outline two methods a business may use to minimise bad debts - Leaving Cert Business - Question 6 - 2017
Step 1
(i) Assess Credit History / Credit Worthiness:
Answer
A business should check the creditworthiness of potential customers in advance. This can involve requesting bank references, trade references, and credit bureau reports. By assessing the financial stability of a customer before extending credit, a business can significantly reduce the risk of bad debts.
Step 2
(ii) Set Credit Limits:
Answer
It is crucial for a business to set appropriate credit limits and payment periods for customers. This involves drawing up clear terms and conditions that outline how much credit is granted and the timeline for payments. Ensuring that customers are aware of and abide by these limits can help in managing and minimising bad debts effectively.