There is always the concern of whether or not you will be paid when offering credit to your clients. If you are familiar with your customers and are confident in their ability to pay, it might not be an issue. However, when your company grows, a flood of brand-new clients may arrive who you haven’t worked with before. You can’t be sure whether these new clients will pay because you don’t know their payment history.
Giving credit entails the risk that the debtor won’t keep his or her end of the bargain when it comes to payment. If it is assessed that it cannot be collected, an accounts receivables turns into an uncollectible account or bad debt. That does not, however, imply that you should passively accept the danger and do nothing to mitigate it.
It’s true that certain receivables will inevitably become uncollectible, but there are still a number of things you can do to avoid it. It’s not always incorrect to assume that “if a consumer owes a debt, they have to pay it.” However, depending solely on this presumption without engaging in the “active” portion of the debt collection practices and process causes uncollectible accounts to build up over time. The likelihood that a company’s receivables will become late or even uncollectible increases the longer it waits passively for payment.
The following article intends to explore what accounts uncollectible are and when does an account become uncollectible?
What Are Uncollectible Accounts?
Accounts that have almost little chance of being repaid, whether they are receivables, loans, or other obligations, are deemed uncollectible. A debt may become uncollectible for a variety of reasons, such as the debtor’s bankruptcy or lack of funds, an inability to locate the debtor, the debtor’s deception, or a lack of adequate documents to support the existence of the obligation.
It is fair to assume that a receivable is uncollectible if a company tries everything possible and is still unable to collect. At that point, the receivable is essentially worthless and should be written off.
Uncertain about how to reduce the number of uncollectible accounts? First Credit Services has got you covered. We offer both First Party “Precollections” and Third-Party Collections that are proven to minimize your uncollectable debt. Our Precollection service provides friendly and consistent engagements to your past-due accounts prior to sending them to collections. Precollections will shorten your AR days, increase cash flow, and improve customer loyalty. All accounts that are not rectified by Pre-collections can then be escalated to our Third-Party Collections program. Together, these two services from FCS will drastically lower the amount of uncollectible debt your write-off each year. . With over 25+ years of expertise, First Credit Services is an omnichannel debt collection agency and BPO company that offers top-notch services with a focus on accounts receivables management and customer service outsourcing.
Contact us to learn more.