There is no doubt about it; many businesses can be lost due to the amount of bad debt they carry.
Bad debt is when a company makes a sale or provides a service that cannot be paid for.
Mostly, those that owe the debt have become insolvent and gone into bankruptcy.
When there is no chance of debt recovery it is written off as an expense.
The business may have spent money on debt collection by paying a debt collection agency to go after it, all to no avail.
In some cases, the amount is not worth spending any more to try and recover.
Other times it is a significant amount and its loss means a business will struggle to cope.
It is an unfortunate fact of life that bad debts must be allowed for in the working budget of every business.
This is done by increasing the costs of goods or services and aiming to sell even more.
The trouble with debt recovery is that it also costs a great deal, so that debt is added to the loss of the debt that went bad as well, if it is not recovered.
A business would do well to manage its clientele so that loss from bad debt is minimised.
Ways of doing this will vary depending on the type of business.
Otherwise losses due to bad debts can really get out of hand and may even cause a business to go the same way as the customer, viz, insolvency.
That is not a pleasant outlook as no business is started up with the idea of becoming insolvent.
However, strict accounting with invoices sent out promptly will make that business more efficient at debt recovery.