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In the modern economy, the term “debt” tends to always take a negative connotation. However, it’s not always that simple, especially in the business world. In some cases, companies will deal with good debt that’s focused on growth. In others, organizations will be burdened with the financial losses associated with bad financing arrangements. If you’re a business owner, here’s what to know about these two types of credit and how a collection agency can help you avoid the dark side of debt.

Good Debt

collection agencyGood debt is generally considered to be credit that a business uses or extends to grow the company. For example, loans can be used to purchase commercial real estate, which in turn, amplifies a company’s productivity, assets, and cash flow. In other situations, good debt may be used to purchase equipment or inventory that will help generate a profit. Extending credit to a client may also be favorable if it leads to increased sales and lasting professional relationships.

For these financing arrangements to be good, businesses must demonstrate that the debt will lead to a greater return—such as by boosting profits or generating brand awareness. It should also carry a low-interest rate and boost the credit score of the company.

Bad Debt

Bad debt is any type of credit that will result in a financial loss for a client. This may involve financing that carries high-interest rates or wastes funds with no payout., such as using loans to pay employee salaries before the company achieves sustainable growth. Extending credit to a client may also not be worth it if the interest rate doesn’t offer an acceptable return.

It’s also possible for good debt to become bad. Most commonly this happens when a company extends financing to a client who unexpectedly fails to repay invoices. Fortunately, in these cases, collection agencies can help recoup all or some of the initial investment to minimize losses.

 

If you’re struggling with bad debt due to unpaid invoices, Joseph, Mann, & Creed in Twinsburg, OH, offers extensive support to recoup the money that your business is owed. Serving industries across the United States, this commercial collection agency understands the complex terms of B2B financing arrangements and how to help both parties resolve debts amicably. This team will work with precision and speed to deliver results that make sense for your budget. Visit their website and LinkedIn page to learn more about their legal collection services, or call (216) 831-5626 today to schedule an appointment.

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