Profits and sales are the lifeblood of any business. It is important to bring the business cycle to the point where the money is actually received.
The business will have trouble because of this. In fact, if a business can't get paid, it might have trouble paying its own bills. This could cause bad debt, which can grow into a big problem for the business. Everyone runs the risk of having bad credit or not being able to pay. When things get really bad, some people even say that the credit system is to blame for putting our society in even more debt. But going that far is probably too much.
The credit payment system was made because sometimes it was hard to pay for big things all at once. The dealer was able to keep doing business with customers he had known for a long time but who were having trouble making payments because of the credit system.
In good faith, many businesses would lend money. We all know, though, that this doesn't always happen. People do sometimes have trouble with money. It's hard for them to pay their bills and debts because of this. Sometimes the payment doesn't come through, leaving the person who was supposed to get it with bad debt. Still, even though the payment will never show up, the customer will have gotten what he paid for.
Companies do plan ahead and set aside money for these kinds of bad debts, but they still cut into their net profit. Also, it doesn't look good on their credit reports. Many people are also kind enough to lend money to friends or other people. Even after waiting, sending reminders, and doing everything possible, if this money can't be recouped, it is called "bad debt." This needs to be crossed out in your books.
Bad debt is both a loss and a shame. It means that all their hard work doesn't always get noticed. It's sad, but true, that sometimes the only thing that gets everyone's attention is a lost payment. Only certain kinds of bad debts can be deducted from taxes, while others can't.
The only way for a company to save money on these costs is to hire a collection agent who can go from debtor to debtor to collect the money that is still owed. You could try it, but don't get your hopes up too much. They could not be traced.
So that the seller or dealer doesn't lose a lot of money, the customer should always sign an agreement that says he will pay within a certain amount of time. The dealer could also charge the buyer a retainer fee for the services he or she is getting. Even if the deadline has passed, there may still be a way out. If you pay according to a payment plan, the loan might not go bad. The plan says that the borrower should be able to make small but fixed payments.
