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When should a bad debt be written off?

Are you thinking of writing off a bad debt? Before you say 'goodbye' to the money you're owed, it could be worth getting professional help and advice from a reputable debt collection agency.

Writing off a bad debt should always be a last resort for any business. It's not just the fact that your cash flow could be compromised and your bottom line will take a hit, it's also about protecting your reputation for good financial management. The last thing you want is for other debtors to think that they can get away with not paying what they owe you.

Unfortunately, many businesses are only too willing to write off debt without exploring every available recovery avenue. It's a particular issue for SMEs, many of which have limited internal resources to chase debts and focus single-mindedly on credit control. According to Bibby's May 2022 SME Confidence Tracker, more than a quarter of SMEs reported suffering as the result of a bad debt in the previous 12 months. The average amount written off was £10,329 per business. That's a staggering total of £16 billion lost to SME businesses in just one year, many of which will be the least able to absorb those costs easily.

Is it time to get professional help?
If you've tried everything to recover a debt yourself, including taking legal action, you probably have no alternative than to write it off. However, if that's not the case, it could be time to put the debt in the hands of a professional debt collection agency.

It's about getting valuable support. A debt collection agency with proven professional experience will have the expertise, time and resources that you may not have available in-house. Chasing a stubbornly overdue debt is important, but it's not something you can always afford to prioritise over other things, such as continuing to deliver excellent service to your other customers, winning new business or diversifying into new markets.

A way to protect your reputation
It's not good for any business to get a reputation for being less than diligent in chasing overdue debts. It's an invitation for unscrupulous debtors to delay payment or to try and get away with not paying altogether.

Putting an overdue debt in the hands of a debt collection agency sends a clear message that you're prepared to take every action possible to recover what you're owed. A reputable agency will operate with professionalism and integrity, but also with authority and tenacity. Their very presence in the chain of communication could help persuade the debtor to pay up, saving the need to resort to legal action.

What if the debt collection agency is not successful?
A good debt collection agency will have a strong track record of success. However, there will always be debts that are unrecoverable, despite the agency's best efforts. If all avenues come to a dead end, including legal action, at least you can be confident that everything possible has been done to try and collect the debt. You'll then have a clear-cut case for writing it off.

Thinking of writing off a debt? Talk to us first.
At Redwood Collections, we're here to help you avoid the potential financial and reputational damage of writing off a bad debt. We offer a ‘no collection, no commission’ charging structure, and you are in control of permitting any fees required towards legal action. What's more, our commission rate doesn't change, however long it takes us to recover the debt. With the peace of mind of knowing that we'll act on your behalf proactively, with integrity and to the letter of the law, there's really no good reason to write off a debt without contacting us to see what we can do. By helping you avoid costly debt write-offs, we can help your business Grow Stronger.

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