How to turn write-off into revenue and support the bottom-line

Whether a company’s provisioned debt is based on historic performance or risk analysis – it is still an estimate and there is always an opportunity for upside. Already written off on the balance sheet, collecting out on these “at risk” accounts can create upside which can support the bottom-line and a potential hero out of the person who actioned it.

image of man with graph showing upside driven through provisioned debt

All businesses which operate on open credit will make a provision for bad debt.  A reserve against the risk of certain accounts receivable being uncollectible, it is calculated using general and specific allowances. A general allowance is a calculated as a percentage of total accounts receivables – based on the business’ historic experience. A specific allowance includes individual accounts which have been identified as a bad debt risk – either by knowledge of the business’ financial health or through aged debtor analysis.

Whichever way your business’ provisioned debt is calculated, there will always be an element of estimation. Whether using historic figures or risk analysis based on the decreasing collectability of ageing debts – unless a business has ceased to trade there can still be the potential to collect. And if there is one thing worse than keeping a balance on your ledger too long, it is writing off a balance which is collectable!

If inhouse efforts have proven unsuccessful, bringing in an outsourced debt collection provider at this point can be a game changer. You might pay a percentage for an external party to work these provisioned files, but 80% of something is better than 100% of nothing – particularly when it is all upside to the bottom-line.

As these files belong to defunct customers, the common push backs to outsourced debt collection can often be overcome. Fears over the impact to ongoing customer relationships become null and void when the customer has ceased to trade with you. Provisioned debt can be a good toe-in-the water trial for businesses who have identified a need for outsourced debt collection but are still struggling to make the leap. It can provide a low-risk look at the effectiveness of your potential outsourced partners systems and processes – and ultimately whether they are a good fit for your business.

Author: Mark Smith

If your business would like to access the potential revenue in your provisioned debt, 4D Contact can help. We have extensive experience in finding additional revenues in ledgers which have been previously worked by both internal and external collection teams - helping finance teams reduce BDA, increase working capital and support the bottom-line. Contact us now at: sales@4dcontact.com or on 020 37691487 / 07885 936914

 

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Richard Clow

Head of Consulting, Schindler UK

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