chapter 19-mike solomich - Chapter 19 1-10 Michael Solomich...

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Chapter 19 1-10 Michael Solomich 1/11/09 1. Collections are an inherent part of any credit business. Some customers will take longer than expected to pay their financial obligations. Some will not pay at all. Obviously, the profitability of the credit operation will suffer in either situation. 2. Bad debt is an operating expense that occurs when an account is determined to be uncollectible and the entire amount owed is charged as an expense against the firm’s sales. The event that prompts the decision to charge off an account varies but may involve the closing of a debtor’s business, the disappearance of the debtor, or the belief the client will never be able to pay. 3. A good collections department will often improve sales. Credit customers will generally buy goods from firms where they are up-to-date with their payments and where their status is good. Borrowers will return for more loans from lenders that have helped them make regular payments as agreed. Also, previous collection problems that were not handled well may cause embarrassment which prevents future sales. In this case, the customer will buy from competing firms. 4. If the debtor misunderstood the terms of the credit, the individual may not have known that payment was due. In the interest of maintaining goodwill, the collector must generally believe that the customer misunderstood the terms. Sometimes customers feel they were overcharged or that the goods received were
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This note was uploaded on 11/15/2009 for the course ENG 401 taught by Professor Mess during the Spring '09 term at Northwood University, Michigan Campus.

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chapter 19-mike solomich - Chapter 19 1-10 Michael Solomich...

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