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Outline two ways to minimise bad debts for a business - Leaving Cert Business - Question 11 - 2022
Question 11
Outline two ways to minimise bad debts for a business. (i) (ii)
Worked Solution & Example Answer:Outline two ways to minimise bad debts for a business - Leaving Cert Business - Question 11 - 2022
Step 1
(i) Check credit worthiness of all Debtors:
Answer
Before engaging with new customers, it is crucial for businesses to assess the creditworthiness of potential clients. This may include verifying their financial history by requesting bank references, trade references, and conducting checks through credit bureaus. For instance, a business could examine credit ratings and histories to avoid partnering with individuals or companies that have a record of defaulting on payments.
Step 2
(ii) Set appropriate credit limits and credit periods:
Answer
Establishing clear credit terms is essential for minimizing bad debts. This involves setting specific credit limits—such as a maximum of €5,000 for each customer—and defining a payment timeframe, typically one month for any dues. By doing so, businesses can manage their exposure to risk while prompting customers to adhere to timely payments.