Tag Archives: bad debt

The Impact of Bad Debt on Sales

28 Oct
business vision concept and man standing on money

Companies may sometimes become accustomed to thinking of bad debt as a cost of doing business. After all, every accounting department has to write off bad debt every once in a while, right?

That’s not necessarily the healthiest way to view any bad debt you may have out there. Instead of worrying about your write offs, you want to be able to focus on new sales, revenue growth, profitability, and brand awareness. And as we all know, reducing bad debt can, and will, have a direct impact on your bottom line.

By the Numbers

When you have to write off large portions of bad debt, you simultaneously must increase the pressure on your sales team and marketing staff to recoup the revenue you lost in those write-offs. Ultimately, you want your sales to drive growth, improve cash flow, and create new opportunities for your business.

A cash-positive business can hire more employees, expand into new locations, and upgrade equipment. When you’re drowning in bad debt, however, you’re too busy making up for losses.

If you’re using your sales to cover write-offs you’re reducing your business’s accounts receivable management efficiency and leaving money on the table. Worse, your sales, advertising, and marketing employees are faced with enormous stress as they scramble to improve customer acquisition and retention rates.

To understand how bad debt impacts sales, you need to know two metrics:

  1. Your net profit, and
  2. The amount of money you’ve written off.

Let’s say that you’ve written off $100,000 in bad debt and your profit margin is 5 percent. In this scenario, you’ll need to generate $2 million in profit to offset that loss.

Check your DSO numbers to determine whether you’re operating efficiently. Companies with a DSO of fewer than 45 days (and ideally 30 days) typically enjoy better cash flow and fewer write-offs. If your DSO has extended to 60 or 75 days, however, your bad debt could have an increasingly negative impact on your sales.

The solution is two-fold.

First, create a solid debt-collection strategy. Don’t wait until the 90-day mark to start calling customers and asking about unpaid invoices. Take a more active approach.

Consider working with a professional, third-party debt collection company. Some businesses don’t have the resources to mount a full-scale debt collection strategy cost up-front. Working with experienced experts should increase the amount of unpaid debt you collect, which automatically reduces potential write-offs – and offsets the relatively modest cost compared to in-house efforts.

Second, stop thinking about bad-debt write-offs as a cost of doing business. Profitable companies focus on revenue growth and stability. They don’t like to feel hampered by bad debt. “Fire” clients who don’t pay their bills, vet potential customers carefully and urge your sales team to take a full-funnel approach to acquiring and retaining clients.

Yes, bad debt can impact sales. Fortunately, there are available solutions to help avoid this trap. We encourage you to learn more about how to optimize your revenue so you don’t get stuck in the bad-debt trap.

Contact Me Directly

Call me at 770-224-8504 or 888-780-1333
Email me by clicking here
Visit my website by clicking here
Visit my Youtube channel by clicking here

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3 Debt Collection Strategies That Work

19 Oct

Ever wonder why some business have better luck collecting debts than others? Let’s find out. Hint: Luck has nothing to do with it.

When your customers owe money, you send an invoice and expect to receive a check in return. However, history tells us that you won’t hear anything but crickets chirping from some customers. About one in every 20 Americans has defaulted on some type of non-mortgage credit. You don’t have to resign yourself to writing off bad debt, though. You might just need a better strategy.

Shift Your Mindset

Your current strategy doesn’t work, so why keep using it?

Effective debt collection starts with a paradigm shift. Instead of thinking about unpaid accounts in terms of “collections” and “bad debt,” start thinking about your entire accounts receivable cycle. Just as preventive medicine can keep patients from getting sick, a holistic approach to finance can improve cash flow and help you predict future obstacles.

That’s why we use analytics to score our customers’ accounts receivables and to help them avoid unnecessary risks. If you have an effective accounts receivable management strategy in play, you won’t have to face collections as often.

Does this mean that you’ll never have to send an overdue payment notice? Probably not. However, you won’t have to worry about bad debt crippling your business because you’ll make smart, holistic financial decisions for your business.

Change Your Approach

Fear and panic won’t help your customers pay their bills faster.

Research shows that financial troubles can cause depression, anxiety, and other mood disorders in consumers. Some people use unhealthy coping mechanisms to handle stress, often denying that a problem exists. In other words, your overdue payment notice gets shredded with the other collection letters. The customer just can’t face the problem.

A compassionate debt collection strategy might help you collect cash faster. Instead of intimidating, threatening, or berating your customers, show them that you understand their predicaments and that you’re willing to work with them.

We’ve discovered that customers pay faster and more reliably with our empathetic approach to collections. We start with gentle reminders and continue collections even when accounts move from unpaid to dormant.

Work With Accurate Data

A customer moves and doesn’t give a forwarding address. Now what do you do?

When you don’t have accurate information for your customers, you can’t collect their debts. Account scrubbing technology proves invaluable when you need to correct errors in your master files so you don’t waste time and effort on bad information.

We have a database that contains more than 450 million records. We use that database to update your information so that collection practices can continue without obstacles.

If you’re struggling to collect bad debts, you might need a change of strategy — or you might need an experienced partner. We’re experts in the accounts receivable management field, and we help our customers remain financially solvent every day. Learn more about how to optimize your revenue, then get in touch. We’re excited to help you turn ineffective collection strategies into cash.

Contact Me Directly

Call me at 770-224-8504 or 888-780-1333
Email me by clicking here
Visit my website by clicking here
Visit my Youtube channel by clicking here

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