Bad debt starts ultimately with a creditor and a debtor. In many situations in today’s economy neither party wanted to be in a creditor or debtor situation. Possibly the debtor did not have money to pay for a service or good, maybe a creditor did extra work not agreed upon, there are a million different situations with another million different circumstances. Bad debt then sits on a creditor’s accounts receivables ledger for a given amount of time, maybe a few months up to years. This often has an emotional effect on creditor’s in particular small business creditors where money is not only expected from a particular service/good but necessary to stay in business.Typically at this point creditors seek help or try to collect on these bad debts on their own. Many are unsuccessful with their own efforts in collections and ultimately end up being sent to debt collection specialists. Debt collection letters are sent out, phone calls are made, and the debt collection process begins.Then external costs such as litigation, skip-tracing, credit reporting and various other fees are often incurred. Creditors are often faced with the thought then of spending more money on potentially bad debt to obtain new monies; money which is in fact owed to the creditor. This creates a certain amount of pressure and stress onto creditors to spend more money for litigation and other premium services. So the big question at hand is, is spending more money on bad debt worth the money to recover bad debt?According to our studies, we have found an unparalleled amount of success with spending money to the efforts of recovering bad debt. Certain collection agencies often offer package contracts to send multiple cases into litigation. There are clear and definitive advantages in doing so. If you have 4 cases of bad debt, one for the amount of $10,000, $4,000, $6000, and $2000 and you pay a collection agency $3,000 for full litigation services. The collection agency is able to recover $5,000 of the original $10,000, $2,500 of the original $4,000, $2,500 of the original $6,000 and $1,800 of the original $2,000.That means the collection agency was able to recover $11,800 of the original $22,000. On average debt collection agencies only usually receive about 10-20% on the far outside of original bad debt claims. Typically up front fee’s allow a much higher rate of success; however, still not promising 100% recovery. In another article of ours “The Proactive Benefit of the Vicarious Collection Effect Phenomenon” we broke down the benefits up front spending. However looking at the circumstances of our current example, $11,800 minus the $3,000 spent for litigation allows for $8,800 of profit, then if the collection agency takes 18% commission (some places do not even take commission on proactive spending accounts) that means another $2124 is given to the collection agency, allowing a total profit of $6,676.In many cases individuals can take bad debt which had $0 worth to them, and turn it into actual money and actual profits. Instead of looking at total balance of what could have been, in this current economy more companies need to look at what is, what is actual bad debt doing, and what is actual bad debt collected. Certain harsh realities must be faced when dealing with bad debt. This is one reason why collection agencies are frowned upon even by their own clients, simply on the basis that 100% of bad debt is rarely collectible.