COLLECTING BAD DEBTS

COLLECTING BAD DEBTS

Most businesses suffer from the issue of bad debts (accounts receivable that will most likely remain uncollectible and will be written off). These debts appear as an expense on the company's income statement, thus reducing net income and most companies make a bad debt allowance since it is unlikely that all of their debtors will pay them in full.

• What if you came up with a way to ensure that all your debtors do pay their debts?

• What if there were some creative ways in which you can ensure that you collect bad debts and save your money as well as the debtor?

More often than not a debtors does wish to pay back their debt but may lack the funds to do so. Chasing anyone through the legal system is both time-consuming and costly and there are no guarantees that you will get paid, especially if you are not the preferential creditor.

If the a creditor can come up with some alternate way to collect a debt then they will not just save themselves time and money but it will also help maintain the relationship between businesses. Some creative and new ways to collect bad debt are listed below:

• Encourage them to work on a payment plan: If the business that owes you a debt cannot pay all at a time, work out a payment plan with them. Formulate an easy plan that depends on their ability to pay. Getting payment in small amounts eventually is better then waiting forever for a large sum to be paid back that might never be paid.

• Help sell their products for them and take a portion of the sale price: As you already have an established business and reputation you can help your debtor to improve their business. Consider advertising their product or service to your customers. This way their sales will increase and you can fix a part of sales as a payment on the debt.

• Take their products directly off them: You can also consider taking their products directly from them. For example, if your debtor is a furniture seller, collect their furniture in amount for your debt and sell, or barter, it to get what you need.

• Get them to join a barter exchange: Encourage your debtor to join a barter or commerce network that will sell their product or service for them and give you barter credits. You can then use these barter credits to buy things YOU need – just like cash.

These methods can save you money and save the debtor. It saves you collection fees and time and saves the person who owes you money because it brings them new customers and helps support their business. Rather than try and “kill them” and maybe get nothing [because there may be other creditors] you can work with them to grow their business by encouraging new customers to go there. Always remember what the Roman playwright and philosopher said ‘He that does good to another does good also to himself.’

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