Unfortunately I see many times when other businesses are not so lucky – and today I witnessed a client terminate a relationship with a customer who simply wouldn’t uphold their end of the bargain.
Many businesses incur bad debts that need to be accounted for in the profit and loss statement, as well as recording the GST impact.
A bad debt is an amount due to a supplier that is unlikely to be paid. The reasons for bad debts are many and varied – but at some point, if the amount is not recoverable, the supplier needs to make the decision to write it off.
Before writing off the bad debt, the supplier, or business can take a number of steps to recover the amount, including:
- send a reminder notice
- send a written letter requesting payment
- phone the customer and request a payment plan (any plan agreement should be followed up in writing)
- engage the services of a debt collector (assuming the cost does not out-weigh the benefit)
During the negotiation process, it is acceptable for the supplier to cease supply until payment is made or alter credit terms.
At all stages of the debt recovery process I encourage you to be calm, polite and reasonable…but at the end of the day you need to look after yourself and your business.