Every business before its establishment comes across a lot of challenges to deal with. It often appoints a business consultant to guide them through the pros and cons of the market trend and its impact on their business. It is important for a business to figure out every aspect that can impact its business beforehand. This is a calculative risk. Presales helps in analyzing each and every aspect and helps deal with a lot of challenges. One such important factor that needs to be considered about the target company is its ‘Goodwill’ before initiating any business transactions with the target company. To minimize the chances of default of payment, knowing the goodwill of the company is crucial. This helps in framing robust debt recovery policies.
In this article we will elaborately discuss about the goodwill of the company and how it can benefit in framing debt recovery policies.
What is Goodwill of a Company?
Goodwill is an intangible asset which represents non-physical items that add to a company’s value but cannot be easily identified or valued. Although they cannot easily be calculated, intangible assets significantly contribute to a company’s success and value.
“The goodwill of a business is the whole advantage of the reputation and connection with customers together with the circumstances, whether of habit or otherwise, which tend to make that connection permanent. It represents in connection with any business or business product the value of the attraction to the customers which the name and reputation possesses.”- Halsbury’s Laws of England (4th edition, Vol. 35)
How to determine the Goodwill of a company?
Goodwill of a company can be determined by the following ways mentioned below:
- Some companies mention the value of their intangible assets in the balance sheet of the company as goodwill.
- One can conduct an informal investigation or survey to find out the credibility of the target company from their clients.
- One can keep themselves updated with the Fortune India 500 lists and rankings.
- One can keep themselves updated with business magazines and economics times newspapers.
- From the legal status of the company whether it is functioning in a sound legal state or not. Whether any litigation is pending or not.
How is goodwill beneficial for debt recovery management?
Goodwill being an intangible asset of a company cannot be calculated, but it is one essential factor of the business sector. Greater the reputation of the company in the market, better will be its services or products whatsoever. When dealing with any business, it is important to anticipate any chances of default from their end. The target company may intentionally or unintentionally fail to pay you after purchasing products on credit or taking services from you. Often fraudulent companies deny to make payment and the creditor keeps on chasing them for recovery. This starts to reflect in the balance sheet of the creditor as bad debts. To prevent oneself from such unnecessary chasing and bad debts, having measures to deal with it beforehand acts beneficial. Hence goodwill is an important factor in framing debt recovery policies safeguarding the company from future possible defaults.
Presales market research is beneficial to any business. Though all the contingencies cannot be mitigated but most of them can be tackled if your business has policies that is foolproof and ready to deal with the uncertain challenges that may surface anytime during the business period. Having knowledge about your customers is an advantage and it certainly helps in taking quick decisions for establishing business relations. Debt recovery management is not a very huge task but an important factor as the money earned by any business is hard earned and ensuring it does not go into loss, robust policies are crucial.