How Important Is Debt Recovery For Big Business?

Annie Button, professional content writer and branding aficionado, explains the importance of debt recovery for big business.

Unsurprisingly, the main goal of business is to make more money than you lose. Staying in the black is vital for the success of any business but there are times when debt is the best option. Businesses using debt as a means to create assets is nothing new yet data shows 52% of UK businesses are now saddled with toxic debt.

Taking on debt of your own may be inevitable but it’s not helped when other businesses remain outstanding on the money they owe. This is particularly taxing for businesses just starting out and can also impact large corporations. Discover just how important business debt recovery is to the success or failure of big business.

Why Business Debt Recovery Matters

Making money is much harder to do when your customers aren’t paying you. That quickly becomes a one-way street and while it might be a nice idea to provide a service for free, it’s not sustainable for most companies.

The levels of debt big businesses are working with can reach the billions, as highlighted by Volkwagen’s €217.3 billion debt. Of course, most of that debt is from loans and not through unrecovered money but it’s a contributing factor.With the scale of VW’s debt more than most companies could ever imagine earning, should it spiral out of control it’s going to take a bailout to fix it. That is why it’s important to recover as much debt from clients and customers as possible.

Wealth Equals Power

Large corporations make a lot of money and their contributions to society are often critical for local or even national economies. This can see them getting special treatment such as tax relief due to their ability to stimulate and drive local economies forwards. Their earnings are on such a scale that small loss levels can be factored into their yearly projections. However, while big businesses can afford to lose money here and there, it’s not sustainable. Companies running at a loss typically do so to keep growing, but there comes a time when profits take priority and the bleeding must be stemmed.

Losing money unnecessarily isn’t a good look for any business and those that can afford to make a loss are commonly the ones who fight the hardest to recover it. Should it come to it, large corporations can invest in better legal teams than those indebted to them which commonly results in a win for the bigger fish.

What Companies Can Do To Recover Finances

Debt recovery is something most people would rather do without but it is necessary at times. Whether a large corporation or SME, finding respectable ways to recover debt can be crucial to survival. The first step is to invoice a client as normal, as this begins a paper trail that shows them accountable.

If the payment remains outstanding beyond the standard 30-day payment term, companies should chase clients through emails and phone calls. Many companies choose to implement a credit hold policy whereby they stop doing any work for a client until their debt is paid. This can also be known as credit hold and it’s common as far as things go because businesses realise they need the service they neglected to pay. However, if things do go further, it’s important to issue a final notice regarding the outstanding debt. It is commonly the last direct communication between two businesses before legal action.

A final notice offers one last deadline for payment and should it not be met then you will pursue legal action. Legal action is the final straw but one that holds the indebted party accountable, with the outstanding fee ordered to be paid.

A Danger Of Being Left Behind

Recovering debts for big businesses is important not just for their own operations but also because of the competition. With large companies like Apple, Amazon and Ford buying up corporate debt, competition at the top of the food chain is becoming more fierce. Top corporations have amassed huge portfolios of cash and investments worth over $1 trillion, turning them into investment managers themselves.

Not only do the largest corporations have their products and services to contend with, but they must also branch out and diversify. Companies like Apple have ventured into financial markets and are prepared to make risky investments like corporate and securitised debt.

Their levels of cash allow them to establish multi-billion dollar lending operations, while others outsource it to already established portfolio managers. That is now the benchmark for large corporations to follow to ensure they can use their swathes of cash wisely.

Living With Debt Can Be Beneficial

It’s no secret that living with debt through borrowing is seen as a viable route to success, and that’s even more apparent for large corporations. Thanks to their size and power, they aren’t seen as a huge investment risk for banks, making it a win-win scenario for both. In this case, debt recovery isn’t so important as the debt brought on by a company is deliberate.

It’s a simple strategy for creating assets without risking too much of a company’s own wealth. Also, thanks to corporate accounting, the interest paid on a loan is tax-deductible, allowing firms to become more tax-efficient by taking on debt through loans. However, not all company risks pay off and that debt can linger around.

Where Does Corporate Debt Go?

Often lumped into the term ‘corporate bond’, much of the debt accrued by big businesses is either restructured or bought by investment funds. Risks in business are a must for companies looking to make huge returns. Playing it safe has its place but risks are where the big rewards are, which is why investing in corporate bonds is such a popular venture.

There are a few reasons for investing in corporate bonds, but there are also risks. One of the best reasons for corporate bond-buying is diversification, allowing investors to branch out across various economic sectors.

The more spread out their investments are, the lower the risk of losing becomes as they are no longer putting all of their eggs in one basket. Successful portfolio diversification will invest in bonds that do not influence each other, so if the value of one drops, the value of others will hold or rise.

Corporate bonds typically create higher yields than comparable government bonds, plus they can provide additional income. The risks include exposure to interest rate increases plus credit or default risks.