In a high-inflation economy, an unpaid invoice is not just delayed cash. It is a direct assault on your operating margin.
When an SME operating on a 10 percent margin suffers a 1 million Naira bad debt, it must generate 10 million Naira in new sales just to recover the lost cost.
For many African founders, the pressure to grow revenue often leads to a costly mistake: extending credit to close deals without checking if the customer can pay.
Reducing bad debt requires shifting from reactive recovery to proactive credit management before the service is delivered or the product is shipped.
Shift from relationship to risk assessment
Many African business owners rely on verbal goodwill or personal relationships when granting credit terms.
While trust is valuable, it is not a financial risk control. Every customer requesting credit must undergo a basic vetting process.
For example, a Lagos-based corporate printing supplier can require new corporate clients to complete a simple credit application form.
This form should request registered company details, director identities, and trade references from two other suppliers.
If a client refuses to provide these details, they are a high-risk candidate who should remain on cash-on-delivery terms.
For large transactions, you can also request a bank reference letter or check their credit status through registered credit bureaus in your market.
Standardise clear payment milestones
SMEs often make the mistake of billing 100 percent of the contract value upon project completion.
This exposes the business to maximum risk, as you incur all operating costs upfront while the client holds all the cash.
To protect your working capital, structure payments around specific project milestones rather than a single final invoice.
For example, a software development agency should demand a 40 percent upfront mobilization fee before any work begins.
This deposit covers direct developer costs and ensures the client has financial skin in the game.
Subsequent payments can be tied to clear deliverables, such as prototype approval, with only a small balance due upon final delivery.
Establish an automated collections process
Delaying follow-up on overdue invoices is a common administrative error that fast-tracks bad debt.
The longer an invoice remains unpaid, the less likely it is to be collected.
Establish a written collections schedule that starts before the invoice actually becomes due.
Send a polite automated email reminder seven days before the due date, attaching the original invoice for convenience.
On the due date, send a formal notification. If the payment is five days late, follow up with a phone call to the finance department.
When payments reach 30 days past due, suspend all further work or shipments immediately to prevent the debt from growing.
Your team must know that continuing to serve a defaulting client only increases your financial exposure.
Review your accounts receivable aged trial balance today and identify every invoice over 30 days past due.
Call those clients directly, halt further services to them, and mandate that all future transactions require a minimum 50 percent upfront deposit.
