Calculate How Write-Offs Impact Sales
If you’ve acquired bad debts, why not just write them off? What hits the bottom line of your costs ultimately requires top line sales growth. Here’s an equation you can use to determine how write-offs impact sales at your business:
(Write-off) / (% Net Profit) = Additional Sales to Compensate the Write-off
For example, if your business has an outstanding debt balance of $2,500, and it operates at a 3% profit margin, then you will need to generate $83,333 in additional sales to compensate the write-off. That’s why it’s important to have an effective collection strategy in place, with credit controls, contact matrices, dispute management processes, and service level agreements (SLAs.)
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