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Minimizing Bad Debt - The Proper Use Of Credit

Apr 5, 2008
Businesses that extend credit to their clients can be a very advantageous situation. This can attract more sales by giving clients an extra convenience.

Unfortunately, businesses can sometimes have the problem of collecting bad debts. To avoid having to collect on bad debts, it is important for a business to lessen the problem of bad debts before a problem even arises.

If a bad debt does occur there are different methods a business can implement in order to collect on bad debt.
First there are credit management strategies. A business should always state clearly the terms related to extending credit and do thorough credit checks. The business should be sure that all credit agreements are put in writing and signed. It also helps if the company maintains accurate records and makes notes on any amount of money that is due or overdue.

Credit ratings should be evaluated regularly and if practical for the company, have the client give a deposit or pre pay for any services or products. The company may even want to collect payment as a project progresses to reduce the possibility of incurring a bad debt.

A business should always have a specific practice for following up on debts. Making phone calls, visiting customers or sending polite reminders are some things that can be done.

If a bad debt still occurs after using some strategies for credit management and the company need to recover the debt, they may want to try a consultation. A business may want to contact the individual that owes a debt and come to an agreement on payment. The company can get assistance from centers such as the Community Justice Center to resolve any debt disputes.

If debt consultation is unsuccessful, a business may want to send a letter of demand to the individual or company that owes money. The letter should request that the amount due be paid by a certain date. The letter should detail the debt and warn that legal action will be taken if the debt is not paid by the date specified. A company should be sure to evaluate the situation before using legal means to collect a debt. A business may prefer to send a letter asking for payment instead of a letter of demand.

A statutory letter can also be used if the debtor does not respond to a letter of demand. This type of letter is similar to a letter of demand but it is sent out like a court document. A statutory letter lets the debtor know of impending legal action that will commence in twenty one days.

After receiving no response from a debtor, legal proceeding may than begin. A business should be aware that starting legal proceeding is the most complicated way to collect a debt. The kind of legal action taken depends on the amount of money owed. Small Claims Courts deal with debt up to $10,000 while the General Division of a local court can handle debt that is up to $40,000.

Legal proceedings can be expensive so a business should consult their local court for information on potential costs.
About the Author
Tristan Andrews is a freelance author who writes articles about Collection Agencies and Collection Agency Quotes.
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