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Why Too Much Outstanding Debt is a Game Changer And Not for the Better

Allowing clients to trade on credit is a common way to facilitate more business. However it can also lead to short term and long term financial burdens when repayment terms are not adhered to and bad debts are allowed to accrue.

Hefty receivable debts place a considerable drag on businesses resources. When bad debts accrue, not only are you losing profits on unrecoverable debts, you are most likely:

  • expending staff resources chasing the debts,
  • purchasing finance to maintain cash flow, and
  • paying fees for defaults and late payments on your own debts.

The cumulative financial impact of bad debt on a business, often leads to a number of game changing consequences which can have devastating effects.

 

Plummeting Profits

When you are simply not being paid for the work that you do, direct lost profits are just the tip of the iceberg. The additional work you need to do to recoup the lost profits means you are working harder for the same amount of money. For example, if you write-off $10,000 in bad debt and you have a profit margin of 4% you would need to make $250,000 in additional sales to make up for the loss. When employees can see their efforts are not being rewarded, moral can also start to plummet as fast as your profits.

 

Read Also: Get Rid off Difficult Debtors This Year

 

Immobilisation

Bad debt can immobilise your business’s money making capabilities. Capital is required whether you want to expand, transition or grow your enterprise. If poor cashflow has depleted a business’s cash reserves, it will need to seek out finance or external investment. The difficulty is however, that businesses with significant debts are unattractive to prospective lenders or other creditors, limiting their ability to acquire finance or buy new equipment or supplies on credit.

Having no capital, and being unable to obtain finance essentially cripples a business and prevents it from any type of variation or growth.

 

Read Also: The Advantages of Outsourcing Debt Recovery

 

Insolvency

At the end of the day cashflow is paramount to the survival and success of a business and a lack of it will ultimately lead to personal or corporate insolvency. If a company or individual cannot meet its repayments to lenders or creditors, they can have their assets seized or be forced into bankruptcy or liquidation. Both corporate and personal insolvency can have long lasting effects on a person’s credit and may limit their ability to conduct business in the future.

Even before a business is rendered bankrupt however, being unable to make all your payments on time can cost you in late fees and charges.

 

How can you prevent bad outstanding debt?

Businesses can avoid the consequences of bad debt, by optimising their account and debt collection procedures. In many cases the most effective and cost efficient way to optimise a businesses’ collections is to outsource to a specialist firm.

Talk to us now, about how we can enhance your cashflow and help prevent a negative game changing event from threatening your business. We provide debt collection service in Sydney, Melbourne and Brisbane.

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  • I have known the principal of the BOSTON Group (Derryn HARRISON) as well as key staff members (including Ben GOWER) for well over 2 decades and have been using their professional services for myself as well as for Powerhouse Logistics Pty. Ltd. on a regular basis, not only in Sydney but on a national basis.

    At all times BOSTON have been extremely pro-active, attentive, courteous and professional with all matters we threw at them. Their advice has always been extremely sound and commercial and I find them to be a "breath of fresh air" within the legal fraternity and have no hesitation whatsoever to highly recommend them.

    Peter Brueckner

    Powerhouse Logistics Pty Ltd (CEO)

  • Expect A Star has worked with The Boston Group for 10 years. In this time we have appreciated the ongoing support of Boston for all of our collection and legal requirements. Like most businesses cashflow is critical to ongoing success and growth, with Boston we have found a partner who are an extension of our business and play a key part in our cashflow management. The Boston Group bring a level of expertise to our business which is valuable and coupled with their excellent customer service we look forward to continuing to work with them for many years to come.

    Ryan Meldrum

    Former CEO

  • I have been using the services of The Boston Group and their legal entity for over 11 years. During this time I have found their service to be impeccable, delivered with the utmost professionalism and integrity. The vast majority of cases that I have placed with Boston were far from straightforward, requiring legal acumen and delicate handling. Having used all methods available without success to procure payment, I confidently placed these matters into their safe hands. In all instances a successful outcome was achieved.

    Mark Parish

    Credit Manager

  • SNP Security has had the pleasure of working with Boston Commercial Services for the past 11 years. Boston has played an integral part in the continuing success of SNP Security’s low DSO’s, 90 Day % Debt & of course Bad Debts Written Off.

    Amanda Griffiths

    National Administration Manager

Boston Commercial Services is well known debt collection agency in Sydney, Melbourne and Brisbane who has long experience in debt collection.