Business owners often find that their cash flow becomes threatened when clients and customers default on payments and leave them with bad debt.
There are ways to avoid this happening, and thankfully, arbitration clauses will allow you to claim your money without the expense and huge waste of time involved in filing a lawsuit in the civil courts, especially with the current backlog of cases.
When chasing debts, businesses often leave money on the table because of the expense of involving costly lawyers and going through the state courts.
Returns rarely cover the costs and often lead to a return of only pennies to the dollar. This leads many businesses down the route of bad debt write-offs. But it doesn’t have to be that way.
Suppose you include an arbitration clause in any contract you sign as a prevailing party. In that case, you can use Ejudicate’s easy six-step procedure to reach an award that can be filed in court and converted into an enforceable judgment.
Ejudicate is a 100 percent online dispute resolution platform.
But before we go into more detail, let us discuss approaches your business can take to avoid bad debt.
What is bad debt?
When your customer defaults on payments they owe you or are in danger of doing so, your business faces a bad debt expense.
The bad debt reflects the accounts receivable that your business cannot collect or may not be able to collect further down the line.
Every bad debt must be charged against your accounts receivable.
The bottom line is that the amount of bad debt reduces the accounts receivable on your business income statement and costs you money.
Your business will need to make up for that bad debt, affecting your balance sheet at the end of the year.
Build bad debt protection into the way you do business
Protecting against bad debt from the outset is the best way to avoid it.
Start by laying out clear payment terms and do not automatically extend credit.
Make sure you do your due diligence on the financial health of those you are doing business with.
Of course, you cannot see the revenues and expenses of your clients, but you should look back on your history and check to see if they paid on time and, when they have requested a credit extension, how long was it before they settled up?
You can also arrange for deposits and payment on account if appropriate for your business.
You should always invoice regularly and if you have enough resources, have an asset account manager assigned to follow up on invoices before payment becomes due.
If you cannot afford a human resource, most modern accounting and invoicing software platforms can help you send out reminders for upcoming and past due invoices.
Have the right person for the chasing role
Chasing money is not an easy thing to do, so pick the person who will do it wisely. They should be organised and efficient.
Your payment collector should also keep a detailed record of unpaid invoices against the amount of accounts receivable.
Every time there is a doubtful debt or doubtful account, they should note it in case you need to record bad debt in the future.
Never underestimate the power of fostering good relationships. If the person you have assigned to the job can cultivate a friendly and trustworthy relationship, it may result in swifter payments.
Ensure that unpaid debts are followed up at regular intervals. All conversations should be documented, especially concerning any agreed payment dates or credit extensions.
It would help if you also considered payment plans rather than resorting to the write off method.
What if you could protect against it from the outset?
The good news is that you can. Your business can make use of Ejudicate’s free arbitration clause builder.
The US courts are divesting more responsibilities to alternative dispute resolution platforms due to the backlog of cases built up since the Covid Pandemic.
So much so that, for example, the Department Of Transportation now requires that any moving companies that transport household items over state lines have an arbitration clause included.
If you have an arbitration clause included in your contracts, you automatically protect against bad debt.
A total of nearly 10,000 arbitration cases were filed in the US in 2020, with $18,011,977,599 in claims arbitrated.
Ejudicate’s six-step document-centric approach is simple, foolproof, and 100 percent legally binding. Moreover, it is done asynchronously and online.
All you do is file your claim and wait for the defendant to respond. Both parties will then enter the litigation phase, after which an impartial Ejudge is assigned based on expertise and jurisdiction to review the claims and evidence.
The Ejudge handles the Discovery Phase, so there are no “fishing expeditions” like you would encounter in a civil lawsuit and traditional arbitration.
The Ejudge will then review the evidence and issue an Award.
Ejudicate’s online platform has the same legal efficacy as brick and mortar arbitration without the hassle of live hearings or appearances.
The software and the speed at which claims are decided give it the real advantage.
The average time to turn around an arbitration claim with Ejudicate is 45 days.
In addition, you pay an upfront fee which is dependent on case complexity and should cost you an average of $1,700 or less.
Can your business recover debt through Online Arbitration?
Your business can recover debt without going to court or paying for face-to-face arbitration. Ejudicate has helped companies across the United States recover debts that were not worth the cost of traditional litigation or brick and mortar arbitration if not for online dispute resolution.
Satisfied participants include electronic commerce sites, factors, banks, MCA, and other lenders.
Ejudicate also handles quiet title, warranty claims and other declaratory relief actions, and different types of monetary disputes.
Our screened network of Ejudges spreads across all 50 states, and each case is matched to the jurisdiction and subject matter expertise of the Ejudge.
Ejudicate is a market-leading online arbitration platform in the United States. Our 100 percent online alternative dispute resolution platform helps businesses protect their contracts and agreements through online arbitration. Follow us on LinkedIn or Facebook for updates and news about online arbitration and more.
*Ejudicate cannot and will not give legal advice on any matters, financial or not.