Who Is Responsible For Bad Debts: Collection Department or Management?

Bad debt is truly bad to bear for a company. In fact, it is quite dirty one as well. But, the questions arise here, why does this happen and how does this happen? If a company or a financial institution could able to find out the right answers of these two important questions, then probably no more bad debt would happen. Let’s try to solve it out.
Generally, when debts or credits are not recovered then it is known as the bad debt. It is said that the credit department is liable for that. It means if a company is suffering with high bad debts then the collection department is not doing its work properly. However, the question is how far it is correct. Is it truly the responsibility of collection department? Does not the management have any role there in bad debts? These are very debatable questions, but important too. Here, the solution of the problem is hidden.

Let’s move to the very first question why does this happen. The reasons mainly include more extended credit period and more flexible eligibility criteria for credit. If a person gets more than enough credit period, then there is a possibility that he or she may not be quite concerned to repay the credit during the middle or last phase of the payment period.  Extending the credit period is just like extending the duration of a baby’s diaper. It becomes too much dirty and it happens in credit too. Similarly, if a person gets easily credit approval even if he or she does not have the eligibility for the same, then also it becomes a great risk for the company.

Hence, those are the source of bad debts, in which collection department does not play any role. Who takes those decisions? It is none other than the management. They do such things to achieve the targets or capture more market or to increase its clients or sales. Thus, targets get achieved and sales go marvelous and finally, bad debts occur. So, where the collection department is responsible now? Collections department is like the doctor of the sick accounts of a company. If some of those or most of those are out of treatment procedure, then what could collection department do? 

Source: http://www.leanworkingcapital.com