Loans How to avoid having bad debt

[Augusta]

If you are lender with interest then you would have had bad debt at some points. Bad debts are irrecoverable loans that you need to write off at the end of the day because you can't get the borrowers to pay.

This ruins a business, because you might have a lot of them that goes same way. So how can be avoid having bad debt from onset. You should always do the following:

Give out big loans to those that have collateral that are equivalent to the amount borrowed

Lend in bits to new borrowers, to assess their credit worthiness

Try to lend more to salary earners and have agreement with their account officers to deduct your own percentage payment from source maybe monthly

What do you think?

 

[Mandy96]

I think one can only avoid having bad debts when you use the loan for the right thing, I perfectly understand that things do not go as planned sometimes, but for someone to take a risk of borrowing just to start up something, then thing must be such a hope for the person. I have an advice as well, most importantly, don’t go for loans when you don’t have a reliable way of paying it, I mean you don’t expect to take it and just think they will forget about it, you have to probably have a good paying job or a standard business

 

[Augusta]

I think one can only avoid having bad debts when you use the loan for the right thing, I perfectly understand that things do not go as planned sometimes, but for someone to take a risk of borrowing just to start up something, then thing must be such a hope for the person. I have an advice as well, most importantly, don’t go for loans when you don’t have a reliable way of paying it, I mean you don’t expect to take it and just think they will forget about it, you have to probably have a good paying job or a standard business

This is what people fail to understand, you need to go for loans when you can pay back but no people just get loans and make the borrower suffer from bad debts

 

[Good-Guy]

Well, obviously one of the best ways to avoid bad debt is to avoid taking loans. However, there could be many different ways you could avoid bad debt and one of the best ways to avoid bad debts is to avoid using credit cards because they increase your debt. Credit card companies or banks charge heavy interest and this could lead to bigger debts. You must also avoid selling goods on credit to certain customers who refuse to pay on time.

 

[Jasmine]

If you have a business, and if your clients are not paying you, that's bad debt. In order to avoid bad debt, you should stop selling for credit. If you sell in credit, it will be difficult to recover your money and you will have bad debt. Sell only for cash and you will easily avoid bad debt.

 

[Mellorando]

There is nothing as painful as Loose your commodity all services to a customer or client who refuses to pay possibly as a result of unforeseen cause all the other. Just like individuals, businesses also suffer from too much debt. Taking on the right amount of debt and at the right time can make the difference between a business that succeeds and one that struggles. A balance of debt and equity is needed by a business to keep the average cost of capital at its minimum. While debt may not be good for individuals, debt can often be good for businesses. When debt is used right, it can have a huge range of benefits for a growing business that has an effective plan for the future.
Debt is used by individuals and businesses as a method of making large purchases that they cannot afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest. Bad and doubtful debts arise when some of the receivables due to a business/individual become uncollectable. It is important to identify the bad debts and initiate appropriate actions to either recover or write off the debts. In business transactions, credit sales have a timeframe within which they must be paid. Depending on the credit policies of an organization and the contract that exists between the parties involved in the business dealing, the timeframe could be 30 days, 60 days, 90 days or 120 days. A default of the credit periods yields bad debts.
But the big question is how can you prevent bad? First Payment terms need to be structured to encourage prompt payment. If late-paying customers are a big problem, the business may consider adding a late fee clause to agreements and contracts. This will hasten payment from the customer’s end. For example, you could offer a five per cent discount for payments made within 30 days, or charge interest on outstanding balances.
And secondly, Ask for money upfront before providing any goods or services.
Asking for money upfront is a way of sending a strong message to your customers that you are serious about your services and serious about payment.
Insist on payment upfront for any goods being delivered. Consider adjusting your system to fit in with this: for example, following up as soon as you realise your payment has been missed out – or calling in advance to ensure that a cheque will be issued.

 

[Caramelle]

In some industries and types of business, granting credits is standard practice. You may have to grant credit terms in order to gain or keep your customers. Such credits can turn to bad debts or uncollectible accounts under unfortunate conditions such as willful default and economic downturn. As a lender or creditor, you can avoid bad debts by applying the 5 C's of credit, namely character, collateral, capacity, capital, and condition. Credit policies should be put in place and this will usually include placing a cap on the amount that an individual or company can borrow. These limits will reset only upon payment of outstanding accounts. Giving consideration to the borrowers' cash flow and matching the frequency of collection to the cash flow are likely to result in the efficient collection of debts.

Alongside tight credit policies, businesses should be able to implement robust and consistent collection activities. This will include giving timely reminders prior to due dates and making systematic follow-ups on past due accounts. A systematic collection approach follows prescribed actions at certain points in the delay, often leading, as a final resort, to the referral of the long outstanding account to a debt attorney or legal counsel. The business will also do well by supporting a cordial and professional relationship between their collectors and the debtors' employees or business owners.​

 

[eldavis]

Though this are good steps and ways to prevent bad debts, some loan apps even go ahead to collect personal details, but even at this some would still refuse to pay, it's more like they are trying you to see what you can do or they are at the stage where they feel you should do whatever you want to do. This is one reason why I would never go into the loan business.

 

[Abigael]

Those are very good tips to avoid bad debt as a loan lender. They will actually help you avoid those people who are known for never paying back their lender. You should start doing this as soon as someone is your new borrower. Just give them a small amount and let them grow their limit by paying back on time. This is what most loan lending institutions do. Then as the limit increases, you should start asking for collateral that is of similar value with the amount they are taking. Taking your loan directly from salaried members account is also a very good idea.

 

[Alexandoy]

The lenders here are smart because they only lend money with no collateral when the loan is small like $100 or less. Take note that the interest rate is 20% per month which is usurious. The last I heard is that the interest is down to 10% in consideration of the pandemic era. Another requirement that lenders needs is the guarantor although that is only for new borrowers.

In my personal life I have experienced countless of bad debts. I used to lend money (without interest, of course) to my relatives and friends. From what I can remember maybe there are more than 30 people who borrowed money from me and did not pay. Do you know what happened? They avoided me so they can escape from paying their loan to me. I had learned to forgive the loan but not to forget it. Those bad debts forced me to have a new policy of not lending money anymore to whoever is borrowing. Just last week there are 2 relatives who were borrowing money. One if for buying a laptop and another is for paying the rent of the house. My reply - please don't share your problem with me.

 

[Jasz]

The world and world of business is full of debt traps for people and startups to fall into. One of the most common traps is taking out a loan to cover expenses, especially when times are tough. Taking out a loan can seem like a good idea at the time, but it can quickly turn into a nasty mess if you don’t make your payments on time.

Many businesses fail because they go into debt to finance their operation. Financial debt is very risky. It’s risky for the business and it’s risky for the entrepreneur who takes on this debt. Debt can make a business more likely to fail, but that doesn’t mean that you should avoid debt all together. Debt can be a tool, but it’s a tool that you need to use carefully.

Personal savings might be enough but it's more secure. You just have to plan yourself well for a long time before venturing into business depending solely on loan, even if you are to take loan it should not be a 65% of your startup.

 

[Augusta]

Yes, people are always fast to take out a loan but they do forget this isn't free money that they will need to pay in future. So hence comes the mismanagement like you rightly stated it will be on expenses and some times the expenses are those that would have been avoided I think business owners need to think hard before thinking of getting a loan to avoid getting into debt trapt

The truth remains that going into a business venture that is risky or you don't know much about it will leave you in debt if you are not careful, this is why it is always important to be sure of a business venture or an investment program before going into it. This way the level of fwiling will be curtail and borrowing to repay will be reduced as well.

To do away with borrowing it is good to agree within you to start and grow the business to the level you want, that way making mistskes will be minimal and getting any form of financial aid after all this mistakes will not leave one burdened with loans to pay back. Staying without borrowing or having expenses to pay is very possible, you just need to have a plan

 

[Bluejettravel 70]

If you are lender with interest then you would have had bad debt at some points. Bad debts are irrecoverable loans that you need to write off at the end of the day because you can't get the borrowers to pay.

This ruins a business, because you might have a lot of them that goes same way. So how can be avoid having bad debt from onset. You should always do the following:

Give out big loans to those that have collateral that are equivalent to the amount borrowed

Lend in bits to new borrowers, to assess their credit worthiness

Try to lend more to salary earners and have agreement with their account officers to deduct your own percentage payment from source maybe monthly

What do you think?

pay in time every bill and if you can't afford something you never buy! never spend a money what you do not have!

 

[Richee84]

For a company who give out loan to people, they must know that in business there is always a good day and a bad day. There is no business that don't have it own risk and the best thing to do is to see how they can reduce the risk to the bearest minimum. Bad debt can happen to any form of business be it financial institutions that gives out loan or a day to day business, for a financial institution it is best to give out loan to people that have collaterals that is worth more than or equivalent to the amount borrow. Another thing is also to give out the loan little by little and they should operate on a low interest rate which will make it easier for the lender to pay back on time.
Then for non financial institutions, for the day to day business, they should try and avoid selling on credit to customer they have tested and fail before. At times it is not possible not to sell goods out on credit to customer cause we must be flexible in dealing with our customer but we must also be very care not accrue to many bad debt all in the name to satisfied our customers.

 

[Augusta]

Yeah you are right it is time that people try to avoid people owing them so much money to avoid running into huge debt that might turn to bad debt. Bad debt which are irrecoverable monies can't be gotten back and yiu did nit forget about them in the long run but the truth remains that, that was part of the capital or profit that the company would have made and now it has been written off as irrecoverable debts

This is why I have started that one must look at the credit worthiness of the borrower. Forget their sweet talks because it is just a way of making one feel guilty to let go of one's money immediately they get it, you wouldn't believe the action of that same person. So truth be told humans are just unpredictable so if you are giving out loans without collateral be sure it is an amount worth letting out Incase it isn't paid.

For me I would recommend that loan especially big amount should only be given to people with collateral. No need worrying yourself or running after anyone when they don't pay up, you just auction what they have and money is recovered.