In business matters you can find all kinds of situations. You may be a successful businessman whose sales always generate profits and you have not had a mishap with customer payments, but it may also have happened to you that a credit sale was never paid to you.
If you want to collect a bad debt, you must first bear in mind that these types of accounts are common in business and represent losses, and second, that the recovery of one depends on many factors; Read on to find out what they are.
What are bad debts?
In business life we can come across different types of clients, some who are prospects and have never been bad in payments, others who pay late; and finally, those who pay on credit without having available funds, that is, customers who do not pay.
Bad debts are a fairly frequent issue in banks or financial institutions that have the different possible lines of credit, and it is more than possible that, in some circumstance, a debtor does not comply with the assigned payments and is owed Even the penny you don’t own.
Uncollectible accounts are usually those assigned credits that were not paid by the debtors, for different reasons, and the lender cannot collect these payments in some way, in an immediate time.
Many times it happens that borrowers do not even have the money in their reserves, and on payment dates they are conspicuous by their absence. It is there when these accounts take the name of uncollectible. And then the bank can resort to third parties to carry out the collection action, as it is necessary in order not to have a significant decrease in profits.
What is bad debt recovery?
The process that an institution has to go through to recover lost money, for the reasons already explained, is extremely complex and risky. However, since there are signed agreements that establish that the debtor must pay his bills, the bank or lender can take action.
The recovery of bad debts is about that: how to make the debtor pay back, in some way or another, the money he owes. Well, after all, that debt will be reflected in the assets of a lender or banking institution, that is, it will be seen in the company’s accounting.
However, when the amounts included in the bad debts are minimally significant, this is allowed to pass and does not represent a great loss; therefore, the recovery of these debts is omitted.
But in the case of recovering them, because they comprise a very high value in the company’s accounting, there are various mechanisms or processes by which these procedures can be mediated legally, to have the money in question returned.
How to collect bad debts?
This is where third party collections come into play. How to collect bad debts is a topic that remains a lot to talk about and always, as long as possible, the borrower loses the game, and that, due to irresponsibility when paying.
Banks, when approving a loan request, especially closed loans that are characterized by being large amounts granted to the borrower, require a signed agreement that establishes not only the payment methods, but also what can be happen if the payment agreement is not fulfilled by the debtor.
As a company, when you make a sale on credit, you must compulsorily ask the client to sign the invoice with which it was paid, this will allow you to have more security of not obtaining a case of uncollectible account from this transaction.
In terms of the bank, this institution can hire a collection agency to harass the debtor to pay the amount owed, on a constant basis. If this does not happen, the collection agency has the legal right to collect in his way, even taking away his assets, leaving a stain on the borrower’s credit history, in addition to resorting to judicial courts to legally resolve this inconvenience.
