How to Rehabilitate a Debtor and Save a Profitable Customer
By David Schmidt courtesy of Your Virtual Credit Manager
Business customers pay for the goods and services they purchase from other companies. After all, a sale isn’t truly complete until it has been paid. Good customer purchases generate a profit for the seller, and I’m not just talking about gross margin. Gross margin is what’s left over after subtracting the cost of goods sold from the revenue generated by the sale.
Incidentally, the higher your gross margin, the more latitude you have in extending credit to marginally risky accounts. Any subsequent collection expenses and bad debt write-offs are more easily recouped through additional sales than if your gross margins are low. The issue with problematic customers is profit dilution. If a customer regularly pays late, constantly takes payment deductions, generates a high return volume, or constantly raises disputes, your net profits will be negatively affected. With good customers, there is little to no profit dilution. Problematic customers, or debtors if you will, are much less profitable and more likely to cause a bad debt loss. Click here for full article