While managing cash flow is always important, the recent
economic turbulence has renewed interest in this topic. Businesses
have begun to focus (to an even greater extent) on ensuring that
clients and customers pay what they owe when it is owed. Reason
being, bad debts directly affect the bottom line of the business:
for instance, a bad debt of $50,000 for a 10% margin business
requires replacement revenue of $500,000.
This article will outline some techniques that a business can
utilize in developing a proactive system to decrease bad debts.
(Please note: specialized tools such as in the case of contractors
and the Construction Lien Act are beyond the scope of this
article.)
Obviously, the starting point in analyzing a business' bad
debts is the sales that led to the extension of credit. It could be
said that there are a number of related stages of a sale: (1)
pre-sale; (2) sale; (3) post-sale; and (4) a salvaging phase.
