Negosentro | How To Recover Your Small Business From Bad Debts? | Bad debt is a type of loss that a business incurs when its credit customers, called “Debtors” in accounting terminology, fail to pay for the products or services provided to them by your company. And, you are unable to recover either a part of the total amount or the whole amount that is due.
The amount that is no more recoverable is considered a loss and written off from your company’s books of accounts. If your company is undergoing high levels of bad debts and cannot deal with them, your business might start to decline. So, what we suggest here is that you place stringent credit control and credit management procedures in place to recuperate early from such losses and take your business global to reach new levels of success.
Now, let us move onto the effects that bad debts can have on your small business.
Effects Of Bad Debts On Your Small Business
Bad debt can adversely affect your business in numerous ways, including:
- Hampering your credibility in front of your creditors as your ability to pay to them on time is reduced.
- The amount of petty cash that is required to run the day-to-day business activities also lessens.
- Bad debts hamper the business’s plan for growth.
- Your company’s image portrayed to the business community, your staff, and other potential customers is that of a disarrayed and messy business house.
- Your business might run the risk of being insolvent in the future if bad debts go beyond control.
Ways In Which A Small Company Can Recover From Bad Debts
Amongst a few places where you can turn when your debtor fails to make payments to you are lawyers for Legal guides, contracts, and collection agencies. They will help you in getting back your business money.
But, if even they fail to do so, there will only be one option left for you, and that is considering that due money as bad debt or irrecoverable loss. So, let’s see how you can bring back your business from bad debts to normalcy.
1. Start Doing More Cash Business And Put An End To Credit Business For Some Time:
When your business encounters a series of confirmed bad debts, you must place a temporary stop on your credit business and shift all your attention to making cash sales. At this time, the only survival option is to focus on how to increase cash sales.
2. Make A Formal Legal Contract If You Are Doing Credit Business:
If your small business is such that most sales volume happens on credit, make legal contracts with each of your creditors mentioning stringent payment terms and conditions. You can include terms like strict payment schedule, the preferred mode of payment, deadline, late payment policy, and more.
3. Expand Your Business And Market It On A Broader Scale To Reach Out To The Masses:
Loss of money is undoubtedly harmful to any business. But, to overcome it, one has to incur additional costs necessary for boosting the company’s future sales, such as expenses incurred on marketing and advertising. Promote your business using technology and offline channels to reach out to more people at one shot. Starting an e-commerce website is a perfect option for this.
4. Add More Product Lines To Your Small Business:
Another best way for small businesses to overcome bad debt losses is by increasing their product lines, introducing those products/services in high demand, and defining their business activities. By keeping new products/services, you will ensure that your sales volume stays normal or increases steadily.
5. Start Giving Promotional Offers To Attract More Cash Customers And Thus Increase Sales:
Customers are fond of sale offers and the place where they get the best offers to win their votes and earn more. So, if you too wish to compensate your business for the bad debts you have suffered, you must also introduce some promotional offers, such as “Buy 1 Get 1” or “Flat 50% off on purchase of 3 or more items”, and similar others.
6. Bring Down Your Extra Costs That Add Little To Zero Value To Your Business:
Whatever extra costs your company has been incurring that directly do not support the business activities must either be cut down or stopped for some time—for example, unnecessary electricity consumption, reduction in wastage, eliminating intermediaries, etc.
7. Ask For Deposits Or Advance Payment When Making Credit Sales:
Implement a new scheme of asking for an advance payment from your credit customers and do not make complete delivery of the products and services till he makes payment in full.
8. Lure Customers By Giving Discounts On Making Early Payments:
As said above, buyers love to get discounts, and so do the creditors. You can lure them into making early payments by promising an early payment discount of 2% or 5% on the total bill amount. Such lucrative offers will force them to make prompt payments.
9. Ease Out Your Payment Process By Introducing Installment Payment Methods:
Just like you have monetary pressure, your creditors also have financial pressure from various sources. So, to help them, you can introduce a payment in installments system that will aid the buyers in making small payments in intervals and finish off the whole amount in due time.
10. Those Who Cross The Payment Deadline Apply Late Fee Charges:
There will be creditors who will intentionally not pay you on time and will keep delaying by making some of the other false excuses. For such buyers, what you can do is levy late fee charges on a days basis, which will increase as the number of days increases beyond the due date.
Summing Up
The above steps are efficient and would yield results in a short period if implemented judiciously. There is no such business that cannot recover from losses. If they wish to revive and make a comeback with a bang, they will do so if they follow the roadmap correctly. So, if you want to see your small business fly high, Cut Costs for business that are not necessary and follow the above guide.
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Author Bio:
Jais Frank is a professional content writer and enthusiastic blogger. He is the co-founder of
Essay Writing Guides. He is associated with many authority blogs such as The Parents Magazine and Gossipment.
