BURN THE EVIL OF BAD DEBT!

 BY TANYA JAIN

Holi is that time of the year where we celebrate the victory of good over evil. And Burning ‘Holika’ Symbolises that. To demonstrate this victory of the good we light a bonfire each year the day before Holi. But have you ever thought of how you can relate this concept to your daily life ? Have you ever heard about bad debts? Bad debts are the evils in your lives. So, to make our life happier and little

Less more stress free it is important to clear those debts first. Debts such as credit cards, recurring personal loans can become bad debts if they are not managed properly.

So, to avoid stress and financial burden lets take a new step to clear our bad debts first. Bad debts are the debts which are un collectable or irrecoverable debt. In simple terms, it is that amount of debt which is impossible to collect back is called bad debts.

But there is no problem in a world that can’t be resolved! With every problem comes a solution. You cant completely remove bad debts from your life overnight but we can start by taking baby steps. Set your financial goals and give priority to your investments and savings. The first start to this process is with realistic and short term goals then move ahead with long term goals. Start a habit of checking your CIBIL once every six months and take measures to improve it, if it’s low. 

When you have tried all forms of recovery and make sure that you can’t recover the amount of money, you lent your friend is when the ‘debt’ becomes bad debts.

The definition of bad debts remains the same everywhere, in the business as well, but the treatment of bad debts is a little different.

As they say, the impact of bad debts is not good for your business. If you have a large number of bad debts, it can be really bad for the reputation for the company.

To safeguard yourselves from the attached disadvantages that comes with bad debts you really need to take quick action and ensure that your accounts receivable process are being managed effectively. To say the least, the impact of bad debts can be really poisonous to your business.

Give some time of your day to build your personal finance portfolio. Get some knowledge of different investments from internet and other reliable sources such as SIP of mutual funds, government schemes and asset building to get better results.

A bad debt expense occurs when a customer who owes you some amount of money which he/she is unable to pay. Using the allowance method of accounting for bad debt expense, estimate the portion of your customer invoices that will be uncollectible each accounting period before the customers fail to pay. Hold this estimated amount in an account called “allowance for doubtful accounts.” When you determine that one of your customers is actually unable to pay, remove, or write off, the bad debt from your accounting records.

Businesses that work on a cash only basis don't have to worry about bad debt expenses, but working on a cash only basis is uncommon in a global economy, specially in this age of technology driven economy.Most businesses know that a certain percentage of sales will not be paid and end up as a bad debt, thus creating the problematic scenario of the higher the bad debt expense the lower the income of the employees and the people working in the company altogether.

Cash flow is really important for business survival and in today’s, not so easy economic climate, ensuring your business is free from bad debts can be the difference between sink or swim.

 

Recovery of Bad Debts:

We all know that a bad debt is a loss and is corrected with the current year’s Profit & Loss A/c. Now, if the amount of bad debt is received in any succeeding year, the same amount will be credited to Profit and Loss of that year as an income. In simple terms, recovery of bad debt is an income and posted to Profit & Loss A/c as profit.

While credit checks can be really good and effective in the process of ascertaining the likelihood of new customers paying in full and on time, they cannot predict the future financial performance or stability. All businesses face financial ups and downs so making sure you have a robust and organised credit control system in place can help minimise the risk of encountering bad business debts and can save your company from facing the after effects.