Think Net Profit

A bad debt is not, as seems the case at first glance, merely a lost sale. It is actually lost net profit. Consider this: your accountant has just completed the business profit-and-loss statement. One of the expense items is a $100 write-off for a bad debt. Your bottom line profit is showing as $1000. Then, just as the accountant is about to sign off on the account, your debtor suddenly bobs up with his $100 payment. Where does this revenue go ?...straight into net profit, of course! Now you've made $1100.

So if you do have to write off a bad debt, how much additional business do you need to compensate for the loss ? However you work it out, the answer is: A lot.

Far better, surely, to give a high priority to making sure your outstanding accounts are never allowed to "go bad", and to hand over slow payers to someone like Collect Australia.