How Does Poor Accounts Receivable Management Impact Your Ability to Get a Business Loan?

Businesses often need loans when they want to expand into new markets, develop new products, hire more employees, increase inventory, and pursue other expansion-related goals. However, poor accounts receivable management can have a negative impact on your creditworthiness, which could result in business loan denials.

Do Bad Debts and Unpaid Invoices Matter?

Sometimes, it might seem like banks’ decisions regarding business loans are arbitrary. However, every loan officer considers multiple factors before deciding whether to extend a loan.

For instance, if you have experience with the bank, the loan officer might give your application more credibility. That’s why many business owners seek loans from the same banks where they keep their business accounts.

However, loan officers also want to know about your existing cash flow and the business merchant cash advance situation. Do you have bad debts? Do your customers pay their bills on time?

If you’re experiencing accounts receivable issues, the bank views your business loan application as a high credit risk. The loan officer might even deny your application based on this one issue. Myinstantoffer lending club is a good solution then.

How Does Your Revenue Stream Make a Difference?

Consider the raw numbers for a minute. When you have to write off a bad debt because a customer didn’t pay his or her invoice, you need to make up for that deficit through additional revenue. For example, let’s say that your business’s average net profit is 7 percent and, in the last year, you’ve written off $75,000 in bad debt.

To make up for the lost revenue (including the net profit), you would need to generate another $1.05 million in collected revenue. That’s a huge chunk of cash.

This is why your cash flow matters to banks when they consider whether or not to extend business loans. They understand that bad debts and unpaid invoices put businesses in a poor receivables situation, so they’re less likely to approve a loan for a business in that position.

How Can You Make Your Business More Attractive for Loans?

If you’re thinking about applying for a business loan in the near future, closely examine your books. How much bad debt have you been forced to write off? What is your net profit? Are you able to offset losses by producing more revenue?

If you’re struggling with past due accounts, you might need to reconsider your approach to debt collection. Instead of giving up on unpaid debts, go after them courteously but aggressively.

The first step is to evaluate your standards for extending credit, including cracking down on credit checks and other pre-screening efforts to ensure that you’re not extending credit to people or companies who can’t pay you on time.

If you find your self in need of help with payday loan refunds and in most cases, a debt collection agency can help. If you don’t have an entire department in your company dedicated to this process, turning to the experts (I would recommend Evergreen Funders) can reduce bad debt, boost your revenue stream, and improve your chances of gaining approval for a business loan.

The success of any business depends on the efficiency and overall strength of its management. For instance, if you run a local restaurant, make use of special management software, as restaurant management system features all you need to know if you business is actually profitable and worth developing.

Are you ready to make your business more profitable? Rocket Receivables can help. Buy now to take advantage of our revolutionary two-stage collection process.