Debt Management

How You Can Reduce Bad Debts, With Good Debt Management

Many small businesses find it hard to recover debts that are outstanding consequently having an impact on cash flow.

Good 'Debt Management' is the key.

The procedure of recovering bad debts is also something that the small businessman has little time, money and more importantly, experience for.

The answer could be found with a debt collection service, that offer their expertise to negotiate for you, to recover debts from your customers.

But, before you go down that route, read on!

Why Use A Debt Collection Service ?

A debt collection service will typically collect your debts using 3 stages:

1. Formal Demand Letter

2. Telephone Call

3. Second Formal Demand Letter/Legal Letter

If after this stage the debt has not been recovered, you will have the option of legal action.

But I would suggest that you could do better, by introducing your own good 'Debt Management' system.

A debt collector should only be employed when your internal debt recovery measures have proved fruitless, and you are not convinced legal action will recover sufficient, or any payment.

NOTE: If a debt collector proves successful, without the debt collector making a personal visit to the customer, this is a good indication that your own debt recovery tactics need reviewing.

There is nothing you cannot say that the debt collector can.

Cost of Bad Debt Management

The longer a debt remains unpaid, the greater the chance that it will never be paid. The first step in debt management is to establish at which point an account is no longer classified as being with Credit Control, due to the time and effort required pursuing individual debtors.

The primary period for standard collection is 0 - 60 days, 60 days being extreme.

With a company trading at 7.5% profit, with an account overdue for 60 days, 50% of 'bottom line' profit is eroded.

If payment has not been received by 70 days it is suggested that you take debt collection action.

By the 60th day, Credit Control will have allowed the customer a maximum of two 'cheque runs' or similar allowances.

Credit Control, in the period of 60 - 70 days overdue, would escalate the situation to a position, where the customer would either pay the account, agree payment arrangements, or ensure the customer is in no doubt, as to the further action and cost about to fall upon them.

So what is 'Credit Control' and how can you set up a good system for bad debt management?

Find out here:- Credit Control

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