Don’t write off debts, you have options to recover money owed

You have satisfactorily served your customer and sent him an invoice for the job.

But the client has since disappeared without paying you or has issued a bounced cheque. What do you do to get your dues?

Many businesses face such dilemmas which are common in commerce, especially for small firms that sell on credit.

As a small business owner, you know the importance of having all of your funds in hand as soon as possible.

Bad debt recovery can be expensive and it can be a worry for many companies.

Although the potential risk associated with credit is quite obvious, many businesses still fall victim to defaults and incur huge financial losses caused by bad debts.

The impressive growth being recorded by debt collection agencies and auctioneers also confirms that debt delinquency is a lifelong challenge for most credit providers.

With rising competition in business, many enterprises are resorting to the use of trade credit to boost sales instead of price discounts.

Many credit providers have recorded increased sales and revenue growths.

Consequently, businesses are tempted to offer credit without risk management structures owing to the fear of losing their customers and market share to rivals who give such services.

Financial losses

Every time a business ventures in trade credit sales, it has to balance the trade-off between increased sales turnover and financial losses related to credit risks.

Most customers will pay within the agreed credit terms whilst others will delay payment beyond the invoice payments date.

To give credit, a business must have a strong capital base or be able to weather resultant cash flow problems.

Similarly, a trade credit sale is equivalent to lending out liquid cash to customers in form of either services or tangible products on account arrangement.