Why you should avoid the tendency to write off bad debts as a small business

Small businesses in Singapore are more vulnerable than most. Their margins are tight and the slightest change in a percentage point can mean the difference between a profitable business and a struggling business. Writing off bad debts is not a good idea.

Below are some reasons why:

i. Made Up in Sales
Let’s say a business writes off $2,500 in bad debts. It has a profit margin of 5%. It needs an additional $50,000 to make up for that.

Why?
It’s not just the money owed to you you’re going to lose out on. You lose the value of your services/goods and the cost of your time. To put it simply, it really is that extreme. Writing off a bad debt is as extreme as waving the white flag.

ii. Spreading the Word
Believe it or not, the word does spread about these things. If a business is known for not chasing debts, it’s going to attract people who have no intention of paying. Why would anyone pay off their bills when they know the lender isn’t going to chase them for it? You don’t want that sort of reputation. You’re not going to survive as a small business in Singapore like that.

iii. Cash Flow is Everything
Bigger companies can afford to let debts settle for longer. They don’t need the money now, although that doesn’t mean they’re going to let the debt go in any case. Smaller companies in Singapore need the money now.

They rely entirely on their cash flow. In the early years, a few thousand dollars could mean the difference between having enough liquidity and having nothing to work with. They can’t afford to give people second chances or write the debt off entirely.

iv. Write Offs aren’t Cheap
It’s impossible to write off a bad debt with the flick of a pen or the click of a mouse button. You have to write off debts by going through the proper channels, and these are costly. Unless the debtor has gone bankrupt, you need to go through the process of legal letters, and sometimes court.

It’s not an easy process to follow, and your business could hurt financially because of it. That’s why it’s always a better option to recover the debt and leave a write off as a last resort.

Make sure this doesn’t happen to you. Use a licensed Singapore debt collector and increase your chances of getting the money owed to you.