XYZ is a bus/coach company, it follows general receivable procedure like most SMEs (ie customer coming => sell goods/services => issue invoice => chase money).
July 2014, new customer A on board, referred by a friend with tens of thousands dollar sales each month. Payment delayed since the first invoice, because of the sales volume, XYZ still willing to do the business.
Customer A was in debt to the ATO and went into liquidation by June 2017. Payments stopped but XYZ did not realize until late 2017 as their payments were always delayed. XYZ found the issue when they got a lawyer for legal proceedings, spent about $1,000 on legal fees but nothing was recovered, leaving approximately $230k bad debt.
Customer B on board by 2015, has personal relationship with the boss of XYZ, good sales
volume, payment on time at beginning, gradually delayed with time went on. Owe
approximately $180k to XYZ, completely shut down because of COVID, XYZ found lawyer to proceed during 2020, the lawyer helped them reach a payment agreement, customer B agreed to pay about $60k through 10 months, but only paid about $40k and stopped payment, lawyer charged about $20k for their service. Balance total $180k -$40k+$20k =$160k loss.
Customer C, on board by 2016, medium sales volume and payment on time. Because of
business issue, started delay on payment by late 2018/early 2019, completely shut because
of COVID, owe about $60k, legal letter sent by 2020, legal fee spent but nothing recovered.
Overall bad debt loss $230k+$160k+$60k=$450k within 5 years (not including small accounts). Compare with assign the credit management work to Xservices, with a monthly budget of $1,000 (5 years total $1,000*12*5=$60k) will be saving $450k loss.
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