Right now, with cash tight and business slowing down, companies need to go after the bad debts as a way to raise needed cash. They need to go after the receivables even it if means getting just something now!
Significant economic change creates opportunities for those who have it in them to deal with it. During economic downturns and worldwide recession the importance of debt collection has come to the fore as a result of the lack of liquidity in the marketplace. It has been magnified since 2008 with the collapse of many worldwide financial institutions. Consequently, banks have either withdrawn or reduced credit facilities to business and the impact has made firms being unable to discharge their debts in a timely fashion due to the diminished circular flow of funds. Successful cash flow management should therefore be your main priority.
BAD DEBT is the one major cause for bankruptcy. In a fast changing economy, selling on credit has a number of advantages, especially when it generates a larger volume of business as well as widens one's market share. In fact, selling on credit often 'Makes' or 'Breaks' a sale and at most times gives one that edge over competition. Yet, one cannot afford to take this area of credit control lightly, as too many companies everyday are mounting with debts that are increasingly doubtful of recovery.
The volatile business conditions of recent years have created problems of cash flow and interest charges never before encountered.
Companies large and small have, in many cases for the first time, come to realize that the trade debtors or receivables, on the balance sheet represent a very substantial and expensive consumer of capital employed. They are also now beginning to accept that, in total, trade debtors represent an investment in the market -place on which the expected return is the profit to be earned only when payment has completed the sale. At the same time, like all investments, those trade debtors are subject to the risks arising from the effect of the economic climate on that market-place generally.
A company can have the best product, an excellent sales record and the most dedicated workforce, but if it does not get paid, it will die. An unpaid debt is a loan being financed by your company - it means that many companies are prevented from achieving their full potential, because instead of using borrowed money to develop and grow their business, they borrow money just to fund their own sales ledgers.
REMEMBER: Cash is to business, as blood is to the body -- allow it to drain away and the body becomes weak and eventually dies.
