top of page
  • Writer's pictureFair Capital

Step-by-Step Guide to Turning Bad Debts into Good Money

Updated: Nov 15, 2023

Bad debts can be a major pain point for businesses of all sizes. They can tie up your cash flow and make it difficult to operate your business. But there is good news: there are things you can do to turn your bad debts into cash.

Turn Your Bad Debts into Good Money

Identifying and Segmenting Bad Debts

Step 1: Identifying Bad Debts

The first crucial step in this journey is to recognize your bad debts. These are typically the debts that have exceeded their due date and have proven difficult to recover. Proper identification of such debts is foundational for an effective recovery plan.

Step 2: Segmenting Bad Debts

After pinpointing your bad debts, the next move is to categorize them. Grouping these debts into different segments allows for a more focused and effective collection approach, tailored to the specifics of each category.

Step 3: Developing a Collection Strategy

For each segment of bad debts, devise a dedicated collection strategy. This plan should encompass a series of calculated steps aimed at recovering the owed amounts. These strategies vary based on the nature and size of the debt.

Step 4: Implementing the Strategy

With your strategy in hand, it's time for action. Implement your collection plan, which might involve direct communication with debtors, issuing demand letters, or, in some cases, pursuing legal avenues.

Step 5: Persistence in Collection

The process of debt collection can often be lengthy and demanding. Consistency and perseverance are key. Maintain regular follow-ups with debtors to increase the likelihood of successful debt recovery.

Step 6: Negotiating Debt Settlements

For debtors unable to pay in full, consider debt settlement as an alternative. This involves negotiating a reduced payment amount that satisfies both parties.

Step 7:Outsourcing to Collection Agencies

If self-collection proves unfruitful, outsourcing to professional collection agencies is a viable option. Their expertise and strategies often yield better results in debt recovery.

Step 8: Selling Bad Debts

As a last resort, selling your bad debts to debt buyers might be advantageous. These entities buy debts at a reduced price and then attempt to collect on them, often using their own specialized methods.


Disclaimer: Any and all information is not intended to be, nor is it, legal advice. Please consult your attorney for information concerning allowable rates of interest.

bottom of page