A bad debt is an amount owed to a creditor, which is not likely to be paid by the debtor. And the creditor in case of bad debt is not willing to take action to collect the debt. A bad debt is such receivable, that customer will not pay. Bad debt arises in two circumstances.
When a company gives too much credit to such customer who is incapable of paying back the debt.
When a customer shows a false statement of his accounts and gets sales on credit. But he has no intention of returning the amount to creditor.Get safer and protect the business from the bad debt problem by using few precautionary measures
- Before offering credit to an individual or a company, check their business and background in detail.
- Set a safer credit limit for customers.
- When payment is received only then the goods should be released.
- Keep regular contact with your clients.
- Offer a small percentage discount on early payments
- Keep on sending the invoices of goods on a regular basis.
- Terms and conditions of the agreement should be clear to the clients.
Collecting the Bad Debt:
Following eight steps should be followed in collecting the debts:
1. Understand the debtor
2. Call the debtor for the payment
3. Call back again after 15 to 30 days time period
4. Discontinue the further dispatch of good or service providing
5. Write demand letter
6. Negotiate with debtor
7. Send a pre-collect notice to debtor
8. Remain aware of bankruptcy of debtor
If all the steps taken remain unsuccessful, then a good reputable debt collection agency should be contacted. Debt collection agency can take care of this matter. Their professional experts and debt collectors will understand the problem and act accordingly to recover the debt.