A fair number of Judgment Collector’s clients are small and mid-sized companies just trying to collect outstanding debts so they can move on. No business owner wants unpaid debts lingering forever. When it comes to judgments, failing to collect can have a measurable impact on a company’s financial health.
We assist both individuals and businesses in their efforts to collect money judgments in Utah and nearly a dozen other states. One of our goals is to make sure clients do not suffer unnecessary financial harm by letting judgments go uncollected. If you would like to know more about how we do what we do, contact us. In the meantime, let us discuss how uncollected judgments impact a company’s financial health.
Reduced Cash Flow and Liquidity
Companies need to look at money judgments from two perspectives: the amount they hope to collect and the amount they plan to spend on collection efforts. Both have a direct impact on cash flow and liquidity. This plays out in three distinct ways:
- Unpaid Debts – An uncollected judgment is essentially an unpaid debt that represents cash not deposited into the company’s bank account. If the volume of a company’s outstanding debt is large enough, it could present cash flow challenges.
- Money Spent – Any money spent on collection efforts is money that cannot be put into other parts of the business. Spending too much on collections can also severely hamper cash flow.
- Limited Liquidity – A profound cash flow shortage limits a company’s liquidity. That company has less cash to pay its own bills. But it also lacks the resources to invest in growth or address unexpected expenses.
The one-two punch of spending on collection efforts and not seeing any money in return can create serious problems if the amount a company is looking at is sizable. The larger the numbers, the more problematic they are.
Decreased Profitability Despite Revenues
Companies also need to look at unpaid judgements from a profitability standpoint. Obviously, a company’s profit is made up of whatever revenues are left over after all expenses have been paid. An outstanding judgment represents negative revenue. The money spent on collection efforts represents an expense.
Even if a company’s revenues remain fairly stable, the expenses of collecting are still being realized. That means less money left over after all the bills are paid. In plain English, the company’s profitability goes down commensurate with every outstanding dollar in unpaid judgments.
A Distorted Financial Picture
Beyond the direct impacts of not collecting and spending on collection efforts, companies need to be cognizant of how unpaid judgments distort the financial picture. In most cases, an unpaid judgment represents an entry in the accounts receivable column.
If it is not properly accounted for, it could lead to the company overstating its assets and financial position. Such a costly mistake could affect everything from budgets to financial forecasts and future decisions on investments and financing.
It’s More Than Just a Dollar Amount
This entire discussion can be encapsulated in one final thought: an outstanding money judgment is more than just a dollar amount on a ledger. It represents potential harm to the bottom line. A single judgment of a nominal amount might not be a big deal. But more sizable judgments, especially if a company is looking at several of them, can significantly affect financial health.
Does your organization have one or more outstanding judgments? Judgment Collectors might be able to help. Contact us and let us know what you are working on. We will take a look and then go from there. If we can do something, we will.