Bad Debt Collection Success: Country Wise Look by Debt Nirvana

Bad debt is the amount/payment that a company fails to collect from the debtor. Debtors are the customers of a company who buy goods on credit. When they fail to make the payments or when payments are meant to be uncollectible then that payment is considered as Bad debts. Bad Debts can arise due to various reasons.

Factors leading to Bad Debts

There are various factors that prevent the company from succeeding in collecting the debts from the customers. Let’s look at it in detail.

1. Customer Insolvency

Insolvency occurs when the liability of the company exceeds the asset value of it. At that time customer is unable to pay the remaining debts to the company. So this is one of the common reasons.

2. Credit Assessment ?

Before giving the goods on credit, the company needs to ensure the credibility of the debtor. This simply means to verify if the debtor is financially capable of future payments or not. The process involves the assessment of financial history, income statement, cash flow statement as well as the assets & liabilities statement of the customer/debtor.?

3. Economic Crisis:

The economic crisis plays a major role in the bad debt generation. When situations like high inflation in the market, recession period of the country, and sudden economic changes due to situations like COVID-19 there can be a great impact on the company’s financial revenue. So this kind of situation can cause bad debt.

4. Poor Debt Collection Process:

The debt collection process is the process of collecting the payment from the debtors in particular pre-decided intervals. When the company fails to perform this process in proper time the delays of payments arise. The company should be adequate in reminding about the payments remaining to the customer. The poor debt collection process leads to an increase in the bad debt ratio of the company.

Bad Debts can severely impact the profitability of the company, expenses for recovering the bad debts, debt to equity ratio, operational disturbance, company’s financial report, increasing cost of capital, and many more. These impacts will directly lead to a major disturbance in the Working capital cycle of the business. Let’s have a brief about how Bad Debt can affect the Working Capital Cycle of the company.

Impact of Bad Debt on the Working Capital Cycle of the Business

This is the working cycle of an organization. Let’s see how it affects the business.

• When a company fails to recover the bad debt, there will be a direct impact on its inventory purchase which will disturb the production process.
• Another direct impact will be on the supplier's payment. If a company won’t receive the payment from the debtors it will find difficulty in clearing the dues of its suppliers.?
• The disturbance in the working capital cycle directly impacts the financial ratios of the company.

Every problem has a solution. Same way there can be many solutions to recover the working capital cycle.?

Top 6 Bad Debt Collection Methods:

There can be various ways through which a company can recover its bad debt. However, during this whole process, the company needs to have sufficient patience. This process may take time. The various solutions can be:

1. Skip Tracing:

The company can skip tracing the Debtors to find out Directors/Owners/Investors/Partners in the Debtor organization and then try to reach them, to open a Debt Collection discussion with the Debtor

2. Friendly Reminder

The company can initially give reminders to the customer that this much amount is pending and ask politely how much time they need to pay the amount outstanding.

3. Negotiation

The company can negotiate with the debtor for the settlement of the payment in several ways such as monthly installments. This process can take time but the debt can be recovered in major amounts.

4. Hire the Bad Debt Collection Agency:

Various agencies in the market offer the services of bad debt collection. A company can outsource this type of service from the market.

5. Legal Action:

A company can take legal action to recover the bad debts from the debtor. Which can ensure the anyhow settlement of the bad debts.

6. Credit Insurance:

You can use credit insurance in this type of situation. When a creditor fails to pay the amount the insurance company will bear it.

Apart from all the methods, hiring a bad debt collection agency is one of the best ways to recover debts and improve the company's working capital cycle. So, if you are looking to hire a bad debt collection agency, then Debt Nirvana is one of the best options that provides proper guidance. So, let's look into the agency.

Debt Nirvana, A Bad Debt Collection Agency

Debt Nirvana Provides services like Debt Collection, Credit Reports, Credit Risk management, etc.? Debt Nirvana can be a good option for any company to recover their Debts smoothly.

Companies try their best to collect the bad debt from the debtors. But the success ratio is not the same every time. Let’s see the country-wise success rate of the outstanding Bad Debt Collection.

According to data collected by Debt Nirvana, New Zealand stands first in successfully collecting Bad Debt by 58%, followed by Australia exactly after it with a 57% success rate.

Moreover, the success rate of? Malaysia, Hong Kong, South Korea, Singapore, and Twain is more than 50%.

Fiji and India are nearer to 50% but the success rate of Indonesia, Philippines, Thailand & Vietnam is less than 40%.

This shows that every company struggles to recover bad debts. Here, Debt Nirvana can help to recover your debt most effectively. Debt Nirvana works systematically with a prior strategic plan which can predetermine the potential risks and help you recover your debts along with the risks. Contact Debt Nirvana today by calling +91-9810010294 or reach us through email at [email protected].?