Provision of bad debt

Poor management of the account receivable contributed to the company’s inability to service its debt, which was rocketing high. There was a significant $40 million total
provision made for bad debts in the accounts over a 10 year period. CEO thought the monthly provision of bad debt of 2% of sales was not a healthy financial trend for the company. Upon investigation, he discovered that the problem stemmed from wholesale distributors who were defaulting.Detailed investigation into the credit control management records revealed that there were insufficient bank guarantees given by the dealers and wholesalers for the goods taken on credit up to one month. The company’s overall account receivable showed an average overdue of more than 90 days and this piece of information had caused the head office to press the alarm bell in the debt recovery effort. CEO noted the practice in the company of accepting the placement of motor vehicles as part of collateral for the goods obtained.

What is the appropriate turnaround strategy?