One of many sales philosophies over time has been that if your business doesn’t have a few bad debts, your business has not maximised its sales opportunities. To some extent, this philosophy is valid, irrespective of whether your business is operating in good or bad economic conditions.
The problem lies however in what is defined as a “positive” bad debt, i.e., it occurred within a known and calculated context where it may not be paid but the risk was worth taking.
A bad debt that was written off because in likelihood it was always going to be by nature a bad risk, is another thing altogether. These bad debts are usually the result of bad business decisions caused by poor management philosophies and/or vested interests, a lack of due diligence, bad planning, ignoring known risk(s), or due to a poor sales remuneration package for salespeople.
In today’s turbulent economic times with many known risks, your business will still be offered valid opportunities to make a sale which may result in a bad debt. The risk needs to be calculated and all possible good and bad outcomes are acknowledged in the decision making. Such situations are always part of the normal world of business.
Making poor business decisions to increase sales without taking into account of all the known risks today, and with the naïve hope of them being paid, is plainly bad business. As we all know, making bad business decisions is not a good business philosophy in a high-risk world where losses or insolvency are often the end result.
We also know that desperate and financially damaged customers will come calling and offer you plenty of opportunities for another sale. The problem is that many of these sales will end up as a bad debt, or if paid, a preferential payment demand from an insolvency administrator. The problem in a high-risk world with sales falling, poor sales decisions are made more often than in good times.
Moving forward in these risky times will require good business disciplines that offer the right form of sales and have payment strategies available to assist in making good decisions. In the real world of business, not every decision will be right, and risks do escalate in turbulent times. However, it is still important to maximise sales decisions to maximise the opportunities to sell at a profit.