Even in this age of low margins and tight credit policies, sales is still king. In order to be successful, businesses must offer credit terms to obtain new customers. And every credit manager knows that, in the usual course of business, some of these sales will be written off as bad debt. But, as long as you keep the write-offs to a minimum, it’s just an unfortunate cost of doing business. Right?

Yes and no. Those uncollected dollars nibble at your company’s sales volumes and profitability. And, they could be slowing eating away at the health of your company, threatening its very survival.

Let’s look at some hard numbers.

Assume that your net profit is 5%, and your projected sales volume for 2005 is $3,000,000.

In January, you made a $500.00 credit sale at net 30. The customer didn’t pay on time. Because it’s not a huge sale for you (just 0.017% of your annual sales), and you are understaffed and overworked, you never got around to following up. When you finally placed it for collection, the debtor had skipped and your collection agency eventually suggested you write it off.

How many sales dollars do you have to make to offset a $500 write-off? Believe it or not, $10,000!!

And what if your net profit is only 4%? You would have to make $12,500 in sales!!

The chart below puts some numbers in perspective. For many, it’s a real eye-opener.

The bottom line: Uncollected dollars are a real threat to the survival of your company. Ignore them at your peril!

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Information provided by ABC-Amega Inc. Since 1929, providing first party accounts receivable collections outsourcing and third party debt collection for management of your commercial receivables portfolio. For further information on our receivable management services, email info@abc-amega.com.