Back to ‘Sales’ – Bad Debt’s Impact on Sales

Debt Collection For Increased Profit
Everyone is officially back to business, seeking opportunities and trying to close new deals.

Focus on collecting your receivables and you will not have to “sell” as much. This is because of bad debt’s multiplier effect on sales. 

In order to compensate for receivables not collected, sales needs to increase by a percentage relative to your profit margin. This chart illustrates the multiplier effect.

 

 

 

 

For example, “XYZ Company” had annual sales of $50 million, operated on a 5% profit margin, but wrote off 3% to bad debt.  While “XYZ Company” had $2.5 million in profit, they were also losing $1.5 million each year.  At the same 5% profit margin, sales would have to increase by $30 million to cover the $1.5 million loss.  In the current economy, a 60% increase in annual sales may not be an achievable goal. Focusing on collecting bad debt by outsourcing receivables to a collection attorney is immediately achievable, has a positive effect on your profit margin and keeps sales goals down to earth.

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