Bit of background about me - i'm a finance analyst in england, who is
training to be an accountant (i'm quite far on and have quite a bit of
good wortk experience though!). I work for a large hotel chain.
What i would say to you is that there isn't going to be any reliable
average percentage regarding bad debts on the P&L (income statement).
I say this because each consumer electronics company is going to have
different customers, different payment terms for those customers and
different accounts staff at their own base, and in the customer base.
Also different company's have different policies for writing bad debts
off - one company may write a debt off if its older than 120 days and
less than £100 for example, where as another may have no materiality
limit and may only write things off after a year or so of chasing. So
coming up with an average figure which is consistant and reliable
isn't going to happen.
I'm guessing you ask this question, as you are worried about your bad
debts? So i'll try to talk about this more. Obviously the absolute
ideal amount of bad debts on an income statement is zero! However we
all know this is not acheivable realistically. In my accounts exams i
do remember that we usually have a provision for bad debts set at
around 5% of credit sales. This is probably not the most
representative figure, but i don't know if that helps?
The best way you can lower your chances of debts going bad is in a few ways -
1. For new customers who require credit terms, ask for contact details
of 2 of their frequently used suppliers, so that you can obtain
references. Provide a tick box questionnaire with fields for comments
- most companies are honest about their customers and how well they
pay. Its quite an ordinary process.
2. Try to issue proforma invoices to new customers before agreeing to
give them credit - see how they work on a non credit term.
3. A trick i've come across is to set your official terms on the
credit agreement to 14 days instead of the usual 30. Although the term
of 30 days may not be a problem for you, it seems to make customers
panic and pay you quicker.
4. The most effective is to get good staff in to chase your debts of
course. Chase debts regularly, making notes on every conversation
including promised payment dates and names of people you speak to and
thier contact numbers. A fatal mistake debt chasers make alot of the
time is to be nasty to customers who haven't paid and to threaten with
withholding supplier- every company is within thier rights to put a
customer on stop, but being threatening and shouting will make the
customer not want to answer calls. If your debt chasers are friendly
and have a good rapour with customers, the customer is much more
likely to remember that you need paying and will want to 'help'.
5. Try to get as many cash sales as you can. Most companies do not
mind paying for the serivce first if you ask (i've found this
anyway!), its just the norm to pay by credit these days i find. Its
better for cash flow on the whole if you get as many cash payments as
possible, and of course you're missing the chance of having a debt
which may go bad.
Hope this has helped you with your question?