Many businesses extend credit to customers to drive sales and improve customer relationships. Though this strategy is successful in getting more business and retaining existing customers, it also creates the problem of bad debts. Bad debts are the receivables that have not been collected. Bad debts show unfavourably on a business account and severely affect the valuable cash flows.
Recovering bad debts is not an easy or pleasant task, and it is advisable for businesses to take measures to avoid or at least minimize bad debt. This can be done by having a credit management system in place. Credit management strategies may include: