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The Dangers of Unpaid Debt

Posted by Emily Herrington on Mar 25, 2020 2:52:11 PM

It should go without saying that unpaid debts are no fun and lead to additional stress, frustration, and problems down the road. In fact, unpaid debt could majorly impact your financial status, credit score, and future financial plans. Whether you are a debtor or lender, here's how unpaid debt can be negatively impacting you. 

Outstanding debt directly affects a company’s cash flow. When a business is dealing with consumers who won’t pay their debts, the profits they should be earning never show up. This impacts a business's revenue, making it more difficult to cover necessary expenses. If the account goes long enough without being paid, it is marked on the company’s financial reports as bad debt. To make up for this added expense, many businesses must raise their interest rates and implement a tighter credit policy.

To avoid these losses, businesses are typically forced to seek out strict recovery measures. This is where collection agencies come into play. The company will send the unpaid account to a collection agency, who will then be responsible for recovering the money owed from the debtor. In the case that you owe money, you will begin to go through the phases of collections which will usually start with a letter and then you will begin to receive phone calls or emails from the collection agency. This process makes it easier for the company to continue focusing on everyday operations, while also providing a further incentive for the debtor to pay.

Collection agencies report the unpaid account to a credit bureau almost immediately, marking the account as “in collection.” If your unresolved account is marked as "in collection," your credit score will be impacted. The severity of the impact will depend on your current credit score, as well as the severity of the debt. The sooner you pay off your debt, the sooner your score will recover.

Whether you pay off the debt immediately or not, your future financial plans can be severely affected. With a history of unpaid debt, you can be labeled as a risky borrower, meaning your applications for new credit are likely to be denied or higher interest rates will be charged.

Currently dealing with unpaid debt and want to avoid the damage it can cause you and your business? Let Account Resolution Team help. Contact us today to start finding the best option for you.

Topics: Insider