If you serve in an accounts receivable or financial capacity within your organization, you may be keeping tabs on the bad debts your company is “writing off” and the toll those write-offs take on your bottom line. (Even if it’s not your direct responsibility, it likely is for someone.) But has anyone taken the time to evaluate how write-offs are impacting your sales?
The Commercial Collection Agency Association (CCAA) has done the work for you, creating the table below to illustrate how much additional sales revenue is needed to offset the losses from write-offs. The stats are actually quite alarming, considering a business with a 2% net profit writing off a $100,000 debt would require $5,000,000 in additional sales to make up the loss!
Want to know how much your write-offs are costing you? Simply match up the write-off amounts with your estimated net profit using the following table:
| Write-Off | And your net profit is: | ||||
| 2% | 3% | 4% | 5% | 6% | |
| You will need the following amount of additional sales to offset the loss: |
|||||
| $100,000 | $5,000,000 | $3,333,333 | $2,500,000 | $2,000,000 | $1,666,666 |
| $250,000 | $12,500,000 | $8,333,333 | $6,250,000 | $5,000,000 | $4,166,666 |
| $500,000 | $25,000,000 | $16,666,666 | $12,500,000 | $10,000,000 | $8,333,333 |
| $750,000 | $37,500,000 | $25,000,000 | $18,750,000 | $15,000,999 | $12,500,000 |
| $1,000,000 | $50,000,000 | $33,333,333 | $25,000,000 | $20,000,000 | $16,666,666 |
| $1,500,000 | $75,000,000 | $50,000,000 | $37,500,000 | $30,000,000 | $25,000,000 |
| $2,000,000 | $100,000,000 | $66,666,666 | $50,000,000 | $40,000,000 | $33,333,333 |
Before you write off your bad debts, be sure to think about how much extra cost and work will be needed to offset the loss. You may find that it’s much more cost and time-effective to pursue the debt instead.
