If you offer credit to customers, you run a risk of not being able to collect it. Then why do companies give credit? Because by offering credit there is a greater opportunity to acquire more sales. The increase in profits from incremental sales should more than cover bad debts.
- Value to Consumers: reduced consumer prices and greater purchasing power, since consumers would likely be faced with higher prices if businesses were unable to recoup losses resulting from bad debt.
- Value to Businesses: It helps them keep costs down and reduce their risk of financial insolvency and bankruptcy that may be triggered by unrecovered bad debt.
Once Prospects with a high potential for bad-debt are identified, the retailer can take targeted actions - it can offer them pre-payment options only, or it can price differentially. And if Customers do default on payments, predictive analytics can help retailers maximize recoveries also.
For further reading, please refer some of our recent work that helped a B2B retailer minimize its bad debt.