What are the best tips to manage bad debts?

Administration of bad debts is a task that almost every business must deal with to protect its interests and remain a viable operation. The debt of this type includes any obligations from customers who are likely to remain impregnable and will eventually be written off as losses. In order to keep the wrong debt to a minimum and protect the company from undermining the customer's default settings, it is important to qualify clients from trade with them, have an aggressive collection strategy, and also create some type of financial reserves that can compensate for any debt that is eventually imperfected.

One of the best ways to structure the wrong debt management is to carry out customers' credit checks before they sometimes expand the credit authority to them. Looking at the financial status of a potential client, the company can determine whether the customer meets the basic criteria necessary to extend the credit line or even if the potential client is likely to pay the monthlyInvoices in a reasonable period of time. If there are indications that the customer is more likely to be the default, the company may decide that the goods and services will be paid after delivery or limits how much loan is extended to this client.

Together with the establishment of qualifications to the front -end, Bad Debt Management also requires the creation and maintenance of the feasible process of the collections. Here is the idea of ​​having specific steps that are initiated as a debt obligation in age. Normally, this will include a reminder of the letters because the debt passes through 30, 60 and 90 -day grades, with telephone contacts to take place when debt at about 45 days. If the efforts for the collection are not successful, the debt to the collection agency will decide to write off because the unobust debt is usually the next step. Should a colleague Ction receive on the basis of an outstanding debt, can always be re -entry into the accountanth books of the company later.

There will be situations in which the process of wrong debt management involves debts that will never be paid, for example in the case of bankruptcy of the debtor. Here the debt must be considered a depreciation of business to obtain any type of tax benefit from the loss. In many cases, the company creates a special account known as a bad debt account or a pillow that helps balance part of this loss. Cushion accounts are financed from excess profits and usually represent a percentage of all current receivables that are over 90 -day brand. With this poor debt management fund, the company has reserves that help balance the debt when all the efforts have failed, and there is no real chance that the customer's debt sometimes gather.