Getting Into And Out Of Bad Debts

Debts in one’s life can be the line between contentment and despair. Therefore, controlling and getting rid of debts, if any, brings order to one’s life or business. Debts occur because majority of the companies make sales on credit to their retailers and dealers.  This is done to increase sales since many retailers may not be able to pay the full cash up front to the company. In this process, it is inevitable that some customers have poor credit ratings. However, it is important that creditors seek expert help with bad credit ratings when they deal with debtors. When all attempts to collect a debt become useless, a bad debt occurs. This usually happens when a debtor becomes bankrupt and is unable to repay it or when the cost of pursuing a debt becomes more than what the creditor can actually collect from the debtor. It is advised that the full amount of a bad debt is written off as soon as it is understood that repayment is not possible by the customer. This can be written off by the company as an expense in the company’s accounts. Non-collectable mortgages may also be written off as bad debts. However, the companies that make these credit sales will have a ballpark estimate on the amount that they might lose to bad debt, which will be marked in the allowance for doubtful accounts.  In some situations, after a debt has been written off or classified as a bad debt, it may be recovered wholly or partially, for example, by the sale of the collateral. This is known as bad debt recovery and in such cases, it may produce an income.