Flathmann & Stern

The Impact of Bad Debt On a Company

Bad debt can seriously impact a company if it is not handled properly.  Take a look at Bear Stearns or Lehman Brothers.  Both of these companies ended tragically when they had to write off their bad debt.  Bad debt can ruin your financial books and even your reputation, making it hard to secure financing.  This is exactly what happened to Lehman Brothers and Bear Stearns.

Bad debt can ruin your company, like it has for many others.  Sometimes bad debt is a direct result of a poorly run company, or it can be created by an economic recession.  Whether or not it is from outside circumstances, it is best to deal with your bad debt prior to bankruptcy.

The older your debt becomes, then the harder it is to collect it.  So if you have accounts that are a year or older, the odds that a collection agency can help you collect them is slim.  Ideally, you would turn your old debt over to an agency that specializes in debt control at the first signs of trouble.  Even if it has been a loyal customer, no one is immune to bad debt and bankruptcy.  The business world today is a dynamic and often unstable environment.  The landscape is constantly shifting, and just because a customer has a long history of paying you back does not mean that they will be able to continue.

Bad debt can also prevent you from obtaining a line of credit from a supplier.  This can seriously hurt your bottom line, because you will not be able to sell your product.  Credit is the lifeline of many businesses, because it allows a business to purchase supplies that they would otherwise not be able to.  If this line of credit vanishes, so does your ability to make a profit.

Bad debt can also hurt your workforce.  If you are not able to offer insurance, give raises, and award bonuses, then you might lose your most valuable asset, your employees.  Losing good talent, is almost impossible to recover from, especially if the employee has been with the company for many years.

There is one way to deal with debt, and that is to stay ahead of it.  Do not let it grow into a huge problem.  If you foresee an issue with a customer, deal with them promptly and right the ship.  Debt is a necessary part of business; but when it gets too big and toxic, it can take an entire company down, no matter what size the company is.

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