- Home
- Bankruptcy and Bankruptcy Code
- Business Entities
- Departmental Operations
- Allowances
- Bad Debt Write offs; Bad Debt Losses
- Calculating Bad Debt Reserves
- Bad-Debt Write Offs; Uncollectible Accounts Receivable
- Computer Skills and the Credit and Collection Function
- Consignments; Consignment Sales
- Credit and Sales; Using Salespeople as Collectors; Team Based Account Management
- Credit Department and Organizational Structure
- Key Activities of the Credit Department; Role of the Credit and Collections Department
- Credit Department Goals and Objectives
- Credit Department Organization; Centralized vs. Decentralized Credit Operations
- Credit Policy Overview
- Divestitures
- Downsizing the Credit Department; Planning and Pitfalls; Outsourcing
- Economic Downturns; Recessions; Layoffs
- Electronic Data Interchange (EDI)
- Finding, Attracting, and Retaining the Best Employees
- Escalating A/R Problems to Management
- The Credit File; Keeping the Credit File Current
- Improving Inter-Departmental Relationships
- Lockbox; Bank Lockboxes; Improving Cash Flow
- Motivation and Performance
- UCC 1 Perfection by Filing
- Required Areas of Knowledge for a Credit Professional
- Impact of Bad Debt Write Offs; Bad Debt Losses
- Shipping Procedures
- Improving the Effectiveness and Efficiency of the Credit Function
- Building Bridges Between Sales and Credit
- Dormant Accounts
- Training Collectors
- Customer Retention
- Working Proactively in Credit and Collections
- Goal Setting for the Credit Department
- Myths about Credit Management
- Credit Practices
- Collection Practices
- Financial Analysis
- Financing Methods
- International Credit
- Laws and Regulations
- Payment Methods
- Performance Measures
- Security Instruments
- Career Management, and Job Change
- Credit Website Tools
- Upcoming Educational Events
- Credit and Collections Tools and Tips
- Tips on Creating Better Emails
- Generating Effective Credit Correspondence
- Exporting
- Accounting
Bad Debt Write offs; Bad Debt Losses
It is important to understand that the most persistent and professional collection process will have little chance of success if the decision to release orders on open account terms to the customer was seriously flawed. A well-managed credit department must dedicate an appropriate amount of time, expertise and resources to the credit decision-making process involving both new customers and existing accounts.
Since most credit managers are required to release orders to marginal accounts, it is inevitable that bad debt losses will occur. No matter how carefully the credit manager screens applicants before credit is extended and no matter how diligent the company's collection effort might be, a certain number of customers will be unwilling or unable to pay invoices.
Note: In some cases, conditions beyond the customer's control result in its inability to pay its bills. For example, if a customer's place of business is destroyed by flood or fire, it is unlikely that it will be able to pay its bills on time -- no matter how much the customer may want to do so and no matter how creditworthy the "debtor company was prior to the disaster.
© 2011 by Michael C. Dennis. All Rights Reserved. Michael is the author of "Credit and Collection Handbook."