Effects of Late or Non-payments/Bad Debt Value

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Globe for WikiEducator.jpg Unit 3.3- Effects of Late or Non-payments 

Introduction | Tenets of Risk Assessment | Risk and Reward | "Eight C's" | 5 "C's" | 3 "C's" | Applying the "C's" | Impact of Nonpayment | Identifying Costs | Bad Debt Value | Interest | Cost and Capital | Administrative | Summary | Resources | Activities | Assessment

Bad Debt Value

Bad debts are obligations that are not collectible for a variety of reasons such as lack of cash flow from a buyer to remit, misunderstanding of terms and conditions and a resulting inability of a buyer and seller to agree on those differences. Bad debts, under the tax laws of the US, can only be written off as an expense by sellers if they can demonstrate, usually through hiring of a collection agency or lawyer, that every effort has been made to make the collection.

In a survey of over 5,000 businesses in manufacturing, distribution and retail, the National Association of Credit Management found that each dollar of accounts past due is worth the following:

Three Months Six Months One Year Two Years
$.90 $.50 $.25 $.00