Selling Bad Debt

Dealing with delinquent accounts is a very cumbersome task for companies, who extend credit to consumers. They mostly opt for bad debt collection agencies to collect their bad debts. Unfortunately, this is not the end of trouble. You have to wait for the collection agency to attempt collection from the borrower. The whole process may take a lot of time and even if you collect the money, it is not the right amount or is lesser.

Selling your bad debt is good option for you to collect money if you have already faced the intricacies of the collection process and do not want to spend more time on it.

Nowadays, the sale of bad debt is increasing considerably. The areas in which bad debt sale is high are credit cards (major), auto loans, telecommunications, and the retail business.

Benefits of selling your Bad Debt

• Selling your bad debt immediately increases your cash flow. If your business requires immediate cash flow, then selling your bad debt is the best alternative.
• If you do not want to deal with collection agencies any more or you do not have more time to wait for the collection agencies to attempt the collection, you can think of selling your bad debt as it will give you instant recovery.
• You can immediately monetize your once written-off bad debt accounts.
• Selling your bad debt will enhance your business operations and decrease your liabilities. Hence, you will be able to focus on the core business functions again.

Considerations before selling your bad debt

• Check whether the bad debt buyer is professional and well- established in the collection industry.
• Make sure that you are selling your bad debt on the Non-recourse basis. In Non-recourse sale, you don't have to bother if the buyer is unable to collect money in the future on the account. You need not buy your accounts back in that case because all the collection risk is taken by the buyer itself. In a recourse sale, the bad debt buyer may return accounts to the seller for a refund of the purchase price due to any collection problem.
• Check whether the debt buyer is handling the account by himself/herself or is he/she reselling it to another agency as this will put a negative impact on your business. It's a common fear in sellers of losing control over their customers after selling their debts to a buyer. You can prohibit the resale of your once sold accounts by making a contract with the buyer.
• Do not sell the account if the customer has declared bankruptcy or is in the payment agreements with your enterprise.