The importance of business records in managing debt

Maintaining up to date records of business transactions, although tedious, is extremely important for all companies. This is particularly true where companies sell their goods and services using credit. Where this system of payment is utilised the company will become a creditor.

Generally the process of debt collection is simple. A customer will obtain a good or service, on credit, and therefore will become a debtor. The creditor will request payment from the debtor and generally the debtor will make payment.

However, a problem arises when the creditor company becomes insolvent. In circumstances where up to date records are not kept, debtors may dispute the debt or attempt to evade paying where they believe that the insolvent creditor has limited resources to enforce payment.

It is, of course, easier to enforce debts when a good has been obtained as there is tangible evidence of the transaction. The real problem will arise where services are provided and poor, or no records are kept, as it is extremely difficult to demonstrate that an amount is owing on an intangible transaction.

Examples of what companies can do to assist in the recovery of debts include:

Ensure records are clear and detailed;
Ensure that both paper and computerised records are kept up to date;
Regularly invoice customers and record when payments have been made;
Ensure that customers who owe a debt can be identified. This requires regularly checking that customer contact details are correct;
Where a contract has been executed for a project to be undertaken, maintain a list of what work has been completed. Do not rely on the person supervising the project to know what has been done.

Taking such simple steps can prevent any complications when debt collection occurs. It also reduces the chance of a creditor having to write off debts as uncollectable.