Bad debts can seriously affect a business if not managed properly. Take a look at Bear Stearns or Lehman Brothers. Both companies tragically ended when they had to write off their bad debts. Bad debts can ruin your financial books and even your reputation, making it difficult to obtain financing. This is exactly what happened to Lehman Brothers and Bear Stearns.
Bad debt can ruin your business, as it has many others. Sometimes bad debts are the direct result of a poorly managed business or can be created by an economic downturn. Whether it comes from external circumstances or not, it is best to deal with your bad debt before bankruptcy.
The older your debt, the more difficult it will be to collect. So if you have accounts that are a year old or older, the chances that a collection agency can help you collect them are slim. Ideally, you would turn over your old debt to an agency that specializes in debt management at the first signs of trouble. Even if you’ve been a loyal customer, no one is immune from bad debt and bankruptcy. Today’s business world is a dynamic and often unstable environment. The landscape is constantly changing, and just because a customer has a long history of paying you back doesn’t mean they’ll be able to continue.
Bad debts can also prevent you from obtaining a line of credit from a provider. This can seriously hurt your bottom line, because you won’t be able to sell your product. Credit is the lifeblood of many businesses as it enables a business to purchase supplies that it could not otherwise buy. If this line of credit disappears, so does your ability to make a profit.
Bad debt can also hurt your workforce. If you can’t offer insurance, give raises, and give bonuses, you may lose your most valuable asset, your employees. It is almost impossible to recover from the loss of good talent, especially if the employee has been with the company for many years.
There is one way to deal with debt and that is to get ahead of it. Don’t let it become a big problem. If you anticipate a problem with a customer, address it immediately and arrange the shipment. Debt is a necessary part of the business; But when it gets too big and toxic, it can bring down an entire company, no matter the size of the company.
