Paramount Collections

MONTHLY BUSINESS CONUNDRUM

There are many business examples where we see that money was not spent upfront to avoid a problem in the belief that any future costs, if a problem occurred, would be of a minimal cost. Unfortunately, as too often happens, this belief is soon proven to be incorrect.

A perfect example is a business’s terms of trade. In the past, and probably still happens today, money is not spent on your business’s terms and conditions upfront on the grounds that your terms of trade would be honoured by most customers. Reality often proved otherwise when the customer didn’t pay. In that case, the business has few legal options to seek redress for the unpaid invoice and to cover the costs of enforcement.

Today, I suggest that this situation still exists, where proper documentation drawn up is not prepared by appropriate legal experts. The same would also apply for the documentation covering special orders, return of product, change to existing contracts, etc.

Another prime example from the past was the introduction of the PPSR (Personal Property Security Register). It took a number of large dollar loss situations to be exposed in the first few years after its introduction, to convince business owners and managers of its worth.

Spending on risk assessment exercises is still lacking for many businesses in regard to new and existing customers, completing annual reviews, when customers seek increased account limits, employing and finding the best people as employees, etc.

The list goes on where spending on upfront costs is deemed to be of less importance than the actual costs in the future which are often overly minimised, yet prove to be far more costly over the life of the business.

August Business Conundrum
Accumulating bad debt for a business can have severe consequences, jeopardizing its financial stability and long-term viability. Bad debt refers to unpaid or delinquent debts that are unlikely to be recovered, often arising from customers who default on payments or are unable to fulfill their obligations. In this essay, we will explore why accumulating bad debt is detrimental to a business.
Firstly, bad debt directly impacts a company's cash flow and profitability. When customers fail to pay, the business's revenue is reduced, leading to a shortage of funds for operating expenses, inventory replenishment, and investments. This can lead to a vicious cycle where the business struggles to cover its financial obligations, making it increasingly difficult to recover from the losses.
Secondly, accumulating bad debt can damage the business's reputation and customer relationships. Unpaid debts can lead to frustration and disappointment among customers, tarnishing the company's image and credibility. This negative perception can deter potential clients and create a downward spiral in sales and revenue.
Moreover, bad debt can strain the business's relationship with creditors and suppliers. If a company consistently fails to meet its financial commitments due to accumulating bad debt, it may lose access to credit and favourable supplier terms. This can severely limit the business's ability to operate efficiently and meet customer demands.
Furthermore, excessive bad debt can lead to financial distress and potential bankruptcy. In extreme cases, businesses may find themselves unable to recover from the losses caused by bad debt and may be forced to shut down operations, leading to job losses and economic repercussions.
In conclusion, accumulating bad debt is highly detrimental to a business. It impairs cash flow, damages reputation, strains relationships with stakeholders, and can ultimately lead to financial ruin. To mitigate the risk of bad debt, businesses must implement rigorous credit assessment processes, maintain open communication with customers, and pursue prompt debt recovery strategies. By prioritising financial prudence, businesses can safeguard their financial health and ensure sustainable growth in the long run.

Monthly Conundrum

There is no doubt a properly worded and designed contract and terms of trade, that has been signed off properly by the customer, is an asset for your organisation.

Unfortunately, too many businesspeople fail to appreciate its value and use this asset to protect their business’s interests. Often, businesspeople and employees with vested interests within the business fail to enforce the business’s rights keep putting forward the rationale “… that legal action is just throwing good money after bad.”

In reality, this philosophy is the root cause of why so many businesses continue to lose money to fraudulent and non-paying customers. The fact is today, many customers have now realised that the majority of situations that their suppliers will not take legal action. Alternatively, if the customer has developed a non-paying strategy, the supplier will accept a lower payment just to clear the debt from their books.

The argument about throwing good money after bad however, has an element of truth as creditor rights have been gradually stripped away over the years because of mounting costs, some of which have been enforced by the courts, public bureaucrats, and the rise of the entitlement generation.

Off course, inappropriate actions of the creditors themselves have not helped their cause.

At the end of the day, it appears too often creditors have not been prepared to fight for their rights, especially those which have the appropriate contracts and terms of trade signed off by the customer. In such circumstances, creditors cannot therefore blame their customers for taking advantage of them.

If the above situation has occurred over the good times, imagine how effective debtors will be avoiding their responsibilities in the future as economic times become more difficult.