The real cost of bad debt

Most business owners know the sinking feeling they get when a debtor either refuses to pay or goes insolvent and cannot pay. There are few options left for a business owner whose debtors go insolvent. While this is a frustrating situation, it can also be a dangerous situation for the health of your business.

Bad debt can affect virtually every part of your business. Plus, when it is allowed to go on for too long or you find yourself with too many debtors who cannot pay, it can even endanger your business. The lack of cash flow can make it impossible to run your business on a daily basis, not to mention the added stress and possible closure of your business.

Limited Cash Flow:

Cash flow is the lifeblood of your business. Without cash flow, there is no business. Unfortunately, a large part of your cash flow is tied up with people who owe you money. While there are some things that you can do to make sure they pay you what they owe you on time, it is ultimately in their hands whether you get paid or not. That can be a very scary thing for a business owner. This is literally putting the future of your business in someone else’s hands – someone who has no interest in whether or not you stay in business.

Added Stress:

Another real-life cost of bad debt is the added stress both on the business and on you, the business owner. Stress can slowly pull the rug out from under a business. Whether it is financial stress on the company or physical stress on you, stress is difficult to overcome. Having debtors who cannot pay you is a definite source of stress. That stress may ultimately cost you quality of life, time away from your family and even make your business suffer under the weight of emotional stress. This stress can also take away from the time that should be spent concentrating on good credit control and preventative strategies to avoid bad debt in the future.

Facing Insolvency:

Finally, bad debt can even put you in a position of facing insolvency yourself. This is the true final costs of having bad debt. If you do not plan for all possibilities, having insolvent debtors can adversely affect your business to the point that you must close the doors. No business owner wants to face the day when he has to think about giving up his business dreams and hard work. That is especially difficult when it is a result of bad debt that could not be paid by debtors. Unfortunately, this is a reality for many business owners who do not plan for the worst.

Bad debt is one of the worst nightmares of any business owner. It is also a nightmare that can be avoided with some simple business practices and by having commercial risk insurance. The cost of bad debt is not worth the minor cost of protecting yourself against it. No one wishes for the day to come when they have to close the doors on one’s dream, relinquishing all the hard work they put in to get there in the first place.

Luckily, there is a simple way to avoid the detrimental domino effect of bad debt. So, if you’re facing bad debt and aren’t too sure on what to do, give us a call at PCS and we will do everything we can to get your business back on track.

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