The end of 2017 is barreling toward us. With that comes a whole to-do list of important items to wrap up before the year closes. For credit managers at many small and medium-sized businesses, the end of the year is the time to reconcile accounts and decide what to do with outstanding debt left on the books.
Credit managers know they need to take care of these past-due accounts, but many dislike doing so. The two main ways they reconcile their books at year-end is through outsourcing to credit collections professionals who work to recover the debt — or by writing it off. Either way, it’s important to have a clean slate as the new year begins.
Debts are often still on the books at the end of the year because credit managers are under the impression the debts aren’t big enough or they simply haven’t tried every other avenue yet. Others wait for fear of alienating customers or because they believe they can collect on past-due accounts just as effectively as experts from a commercial credit management agency. While hiring professionals at an agency is effective, some credit managers are still reluctant to ask for help. Many others think a simple bad debt write-off will be easier and less painful.
What are your options?
However, writing off bad debt can be very expensive. When using a write-off to clean the slate, “the actual amount of uncollectible accounts receivable is deducted from the sales revenue in the accounting period in which they are determined to be uncollectible.”1 By employing this method to clean the slate for the new year, the IRS must determine debt uncollectible, meaning the debt is legitimate, related to your business, you’ve accounted for the debt in your gross income, and you’ve taken reasonable steps to collect.2
While this might be easier than collecting the debt, it’s far costlier. First, you will never see the revenue. And potentially more important, a write-off means your business will need to sell even more next year to cover those losses. Using the write-off method should be your last-ditch effort to reconcile your books at the end of the year.
Rather, attempt to collect the debt through traditional means such as clean, open, and honest communication with your customers; following up with any past-due accounts; and not being afraid to ask for help. Credit recovery professionals can improve debt collection performance and help you and your business avoid costly write-offs.
By hiring experts at a credit agency, credit managers can prove they are doing more than simply writing off the bad debt, which will eventually appear in company financials. By asking for help, you are showing upper management you are trying to recover the debt and avoid a pricey write-off.