Sri Lanka business told to watch out for bad debt

May 04, 2009 (LBO) – Sri Lankan businesses should be more cautious and assess customer creditworthiness more often, when doing business during a recession, a senior corporate executive said. They should watch out for bad debts as during such times previously solvent customers can quickly become insolvent, says Chemanex chief executive Preethi Jayawardena who was the keynote speaker at the LBR-LBO CFO Forum.

“The assessment of the credit risk is very important. If your debtor is not repaying on time, that is the first indication he’s in trouble,” said Jayawardena.

“The next indication is if he’s giving cheques for post presentation and if these cheques are dishonoured, then he’s in real trouble.”

During recessionary times, unlike inflationary periods, the value of currencies go up, prompting consumers to hold on to their cash as the same good or service can be bought at a cheaper price later on.

This hurts companies as vigorous discounts offered by retailer’s to reduce bulging inventories then erode bottom line margins which finally blows over to balance-sheets.

Even though top economists have said the global recession would come to an end soon, Jayawardena s