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  • Writer's pictureEric Williams

Your credit and collection policies may make it difficult to sell your business

Having good credit and collection policies are important for any business, but since I am a business broker, I always tend to look at things in terms of how they may impact the marketability and value of a business.

When a business has significantly aged accounts receivables and/or bad debt it not only negatively impacts a business buyer's perception of financial performance, it also raises other important concerns about the quality of your business which could impact perceptions of value and may inhibit marketability. A few examples of these concerns include:

  • Is the reason for collection problems related to inferior products or services with the resulting customer dissatisfaction causing slow payment?

  • Does the business have quality clients, or does it attract clients that are going to be a hassle to work with?

  • Does the business have ineffective employees who need to be trained or terminated due to their inability to collect money the business is owed?

  • Does the business have inferior systems?

  • Is there a dispute that could lead to litigation or a formal claim since it is common for payment to be withheld leading up to such an action?

If your business has receivables that are aged more than 60 days or you have a history of uncollectible debt, you may want to consider taking a critical look at your credit and collection policies.

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