Bad debt recovery can be simply defined as the process of securing a payment of a debt, which is declared as write-off because of non-payment. The payment can either be full or partial. Usually, companies resort to bad debt recovery after they have specified in their accounting records that the amount of debt they owe is irrecoverable or uncollectable. Because of this, the money that is secured through a bad debt recovery program is considered as new income.
However, it should be noted that not all bad debt recovery programs have the same results or processes. For instance, banks may opt to receive equity for declaring a certain loan as write-off. On the other hand, a partial payment can be collected from a collateralised loan after it has been declared as write-off by selling the collateral.
Almost all types of business establishments will accrue a certain amount of irrecoverable debt at some point. That is why it is not surprising to know that a lot of them have a certain item in their budgets labeled as “allowance for irrecoverable debt. This helps in keeping the accuracy of their accounting records. However, in the instance that a partial or full debt recovery needs to be carried out, this action does not hinder the documentation of future transactions.
What many debtors do not know is that even though a debt has already been declared as write-off, the creditor can still take the necessary legal actions to collect partial or full payment. One method utilised by many creditors is employing the services of bad debt recovery solicitors Northampton. These law professionals’ job is to provide creditors with expert advice on which methods are the fastest and most effective in recovering the partial or full amount of money owed to them.
Bad debt recovery solicitors Northampton will communicate with the debtor and set a schedule for repayment. Once the payment has been collected, bad debt recovery solicitors Northampton will get a small percentage out of it, as compensation for their services. The remaining amount is then given to the creditor.
Selling the uncollected amount of bad debt to other business establishments is another method commonly used by many creditors for debt recovery. In this approach, the creditor receives a certain percentage from the total amount of uncollected debt. The establishment who bought the uncollected amount of bad debt is solely responsible for securing it from the debtor. This approach is advantageous to creditors since this allows them to document in their accounting records the partial amount of the total uncollected debt.
As stated above, any amount secured through a debt recovery program is considered as income. This is because many companies declare bad debt as write-off and as result they have to eliminate the debt balance from their receivables. Typically, businesses follow certain protocols in the proper recording of their income sources. This helps them categorise the amount of money they collect from their various income sources such as investment dividends and sales revenue.