What Businesses in Dubai Need to do to Avoid the Bad Debts?
A company falls into the bad debt trap when the customer fails to pay for the products or services of your company and you cannot chase the payment and collect the money. The money is considered lost and you will be forced to write the sum off in the books of accounts. If the frequency of the bad debts increases or more clients owe you money that you are unable to collect, the business may decline. The company will eventually go into insolvency or liquidation.
What the companies need to do is detect the threat of bad debt earlier and establish the remedial measures with the help of reputed accounting firms in Dubai. Entrepreneurs should be aware of the impacts of bad debts on their business to avoid bigger threats like insolvency.
Best Chartered Accountants in Dubai have identified the following as the major impacts bad debts can have on your business.
1. Bad Debts Disrupt Cash Flow
If the bad debt situation becomes frequent, your company will face serious issues with cash flow. The bad debt will slash down the amount of cash available for the day-to-day operation of the business. Unrecoverable debts will hamper the financial stability of the company due to negative cash flows.
2. Reduces Your Ability to Extend Credits
Bad debt will have a substantial impact on the financial health of the business as it hits the working capital of the business. Due to the effects of bad debt, the receivables of the company will be reduced and the credit policy will be impacted by the loan repayments. The payments get delayed putting the financial stability of the company in disarray. If you are unable to decide on how to rescue the company from the trap of bad debts, consult with reputed Chartered Accountants in Dubai, who can provide you with actionable insights.
3. Creates Bad Image for the Company
The presence of large volumes of bad debt creates a bad reputation for the company among the authorities and the lenders. Frequent and high levels of bad debt mean your company is falling into an impending cash crunch. Banks would start doubting the financial stability of the company and would be hesitant to extend loans to you. Apart from the lenders, your company’s image will be tarnished among the customers as well as employees. Outsource your company’s accounting needs to the best accounting firms in Dubai to save your company’s name.
4. The Threat of Insolvency if Bad Debt Levels Are High
Bad debts are one of the common reasons that may lead to the liquidation of the company. High levels of bad debts mean you will be missing out on payments to the creditors. Bad debts reduce the company’s efficiency and creditworthiness. The company falls into distress and you will have no other option but wind up the company. Working with professional accounting firms in Dubai helps you in setting out remedial plans to avoid bad debts.
How to Avoid Bad Business Debt?
You should be in trouble if bad debts are mounting in your organization. You can prevent your company from falling into distress by detecting the signs early. A professional accountant is your saviour in this critical situation but it is always recommended to outsource the accounting process to the best accounting firms in Dubai as they come with rich experience of working in a wide range of industries. The following steps can be implemented to avoid the possibility of bad debts in your company.
- Assess the Creditworthiness of Customers
- Set Reasonable Credit Limits
- State Terms & Conditions Clearly on Business Clauses
- Send invoices without any delay
- Start chasing the payments immediately once a debt is overdue
- Establish a good rapport with individuals at the client’s company
- Follow up with phone calls to the specific contacts
- Vary payment terms depending on the clients
Always Avail Services of Accounting Firms in Dubai
Bad debts affect a good number of companies in Dubai irrespective of the size or industry. Businesses can avoid bad debts by taking preventative measures including assessment of clients’ creditworthiness. Conducting due diligence and effective credit control is critical to understanding the customers and ongoing monitoring can help the companies identify the signs of bad debt before any problems raise their head.
What the businesses need to do is deal with the bad debts without any delay and implement actions to recover the payment as soon as possible. For identifying signs of bad debts early, avail the expert assistance of eminent Chartered Accountants in Dubai. For better results, always rely upon experienced hands by outsourcing the accounting needs to prominent accounting firms in Dubai such as Jitendra Chartered Accountants (JCA). JCA has been supporting businesses of all sizes for years and helped thousands of companies in establishing a proper accounting process within their organization. JCA’s team of Chartered Accountants in Dubai is highly qualified and assist the clients in ensuring that their financials are in order and saving them from bad debts.