Many businesses stretch out credit to customers to drive sales and improve customer relationships. However this strategy is successful in getting more business and retaining existing customers, it also creates the issue of bad debts. Bad debts are the receivables that have not been gathered. Bad debts show unfavorably on a business account and seriously affect the valuable cash flows.
Recovering bad debts is certainly not an easy or pleasant task, and it is advisable for businesses to take measures to avoid or possibly minimize bad debt. This can be done by having a credit management framework in place. Credit management strategies may include:
- clearly stating agreements in the credit contract
- ensuring all credit transactions are documented and marked
- maintaining records accurately
- keeping track of due and late payments
- checking the credit rating of debtors before extending credit
- checking the credit rating of the debtor on a regular basis after giving credit
- collecting a store from the customer before delivering labor and products
- collecting portions of the payment as a venture advances
- reminding customers of payments through phone, letters or visits
Disregarding having an effective credit management strategy, it is as yet conceivable to incur bad debts. All businesses will have some percentage of customers who delay payments or even avoid them. Businesses have many options to deal with delinquent customers. Some of these are talked about beneath.
Consultation: Businesses can attempt to recuperate bad debt from customers through consultation. The consultation can bring about an agreement between the creditor and debtor regarding the payment. In case of any arguments about the debt, the Community Justice Center can be called upon to intervene and resolve the issue.
Demand letter: A demand letter can be shipped off the company or individual in debt, if the consultation does not give satisfactory outcomes and visit https://www.moneyvisual.com/business/debt-collection-recovery-strategies-that-will-improve-business-cash-flow/. A demand letter should clearly state the details of the debt, along with the total amount of debt involved and the date by which the debt should be settled. The demand letter can also include a warning of legal action in case the debt is not paid by the specified date.
Statutory letter: The credit company may decide to send a statutory letter instead of a demand letter. A statutory letter will also give details of the debt, total amount of debt and anticipated date of debt repayment. Statutory letters are conveyed like court documents and hold greater clout than demand letters. The statutory letter warns the debtors of legal action, within 21 days of the specified date, if they fail to make the payment.