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Salary Index 2009

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Making an Employee Redundant

Payroll Outsourcing

Personnel Leasing

Statutory Holidays in 2009:

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- Malaysia
- Singapore
- Taiwan

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Public Seminar


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Credit Management

AR Assessment Tool


Cost of Bad Debt


What Should We Do

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Cost of Bad Debt and Slow Payment
Written by Andy Li CM MCCMA

Most enterprises have to give credit to their customer for getting more business. Proper credit control is essential for two fundamental reasons:

Slow payment will increase the operating cost for the business. An invisible cost we always ignored is interest. If we maintain a better control on our AR, we may decrease our credit amount from the banker. The cost of slow payment as showed:

No. of days late

Interest Rate (%)

Annual Sales

$100,000

$500,000

30

4

$329

$1,644

7

$576

$2,877

10

$822

$4,110

45

4

$494

$2,466

7

$863

$4,315

10

$1,233

$6,165

90

4

$987

$4,932

7

$1,726

$8,630

10

$2,466

$12,329

On the other hand, if a bad debt occurred in a business, the cost is depended on the pre-tax profit rate on sales. For example:

The amount of bad debt

Pre-tax profit % on sales

3%

10%

15%

18%

Extra sales required to offset the bad debt

$5,000

$166,667

$50,000

$33,334

$27,778

$12,000

$400,000

$120,000

$80,000

$66,667

$36,000

$1,200,000

$360,000

$240,000

$200,000

If the bad debt occurred by a major client, the problem and danger is much more serious for the business.

(All above numbers are aound up to dollar.)