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For every organisation whether large or small business risks abound. One of such risks is the risk of bad debts.

It is worthy of note that credit sales is the life wire through which businesses run. In order to survive in a hostile and very competitive environment, entities must offer some form of credit or the other. This helps to stimulate sales, improve receivables and increase inventory turnover.

However, like every business endeavour, credit sales comes along with its own baggage; the risk of certain receivables turning bad and irrecoverable. The risk of bad debts is inherent in every business operation and cannot be wished away. However, this risks can be effectively managed in order to minimise its effects on the entity. There exists various risk management strategies that could be deployed in order to mitigate against this risk.

Some of this methods specific to our environment are:

1. Offer top quality services.

Charity they say begins in our domain. The entity must be known to produce very top quality goods /services. There is a direct link between the quality of services and the percentage of debts that might end up becoming bad. When customers are not satisfied with the quality of work done, the natural response will be to withhold payment is a 'cold war' styled protest.

2. The organisation must have in place a step by step receivables management strategy. Clear time line course of actions must be in place to adequately track receivables as they fall due.

For instance:

After week 1, send out demand notices.

Week 3, send out reminders to the demand notice.

Week 4, Issue threats of discontinuation of services.

Week 5, physical visitation to solicit payments.

Week 6, temporarily suspend services to force customers to the negotiation table.

Week 7, offer payment plans to recover parts of debts rather than losing all.

3. Organisation should offer rewards for on time payment and effectively communicate this to customers. This rewards could be in d form of cash discounts or just year-end appreciations for good business.

4. In extreme situations especially for very large receivables, organisation can get the services of a solicitor to write 'FINAL DEMAND NOTICES' to debtors. Sometimes, letters from a solicitor might be all you need to effect payments.

5. The receivables could be cashed out. That is, the receivables could be sold to a factoring agency at a reduce amount. It is beta to claim some than to look all.

In conclusion, the risk of bad debts cannot be wished away. However it can be managed through innovation and commitments to chase debt.

Owners of small businesses need to come to terms that business is not a one- way, win-win situation. Sometimes the clouds will come (we cannot stop this), what we can do is have our umbrellas in place to mitigates the effects of d rains.


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