Commercial Collections Blog

A Guide Dealing with Delinquent Accounts

Protecting an Asset

Building and managing a successful business is tough and demanding. That is a fact that only those who have done so can fully appreciate. The reality that there are so many challenges on so many fronts is one aspect of the process that actually produces a sense of accomplishment when success is achieved.

In operating and building a company, you will create a number of assets that are a measure of your success. One of those assets often viewed with less a priority than others is the company’s accounts receivable. Because of a lack of management attention or concern, that important area of your company’s financial strength is often allowed to deteriorate. The Maryland State Bar illustrates the importance of timely debt recovery in reporting that:

  • An invoice over 60 days has only a 70% chance of being collected in full
  • After 90 days, the chance of collecting the invoice in full drops to 45 %
  • After 120 days, the probability of collecting in full falls to 20%

For illustration purposes. Burt and Associates

When receivables age without a consistent and disciplined approach to collection, they begin to lose value. The longer a debt is left uncollected, the more unlikely it is you will receive full value from it. Additionally, the time-value of money continues to erode the profitability of the sale you made to the customer to create the receivable. Experian reported in 2012 that the average delay in paying invoices has now moved to 62 days.

A useful analogy might be considering another of your assets, your property or equipment. If they were losing value every day because of a lack of management or maintenance, you would sense the need to take immediate and proactive action. It is a sign of such good management to view your list of receivables with the same sense of urgency. When your DSO is five percent greater than your terms, or you write off more than .2 percent of your sales, there is collection work to be done.

Following Established Procedures

Let’s face it. You didn’t work to get in a management position to perform preventative maintenance on an expensive piece of equipment. However, you don’t ignore the need; you just assign that task to a qualified technician. Likewise, you don’t view yourself as a debt collector. In similar fashion, the task of debt recovery must be assigned to qualified personnel for consistent and effective maintenance.

There are many reasons for customers falling behind on their obligations to your company. While it can be appropriate to take those factors into consideration for large or long-time clients, most businesses simply can’t afford to deal with debt recovery on a piecemeal and sporadic basis. After thirty days Past Due Terms with in-house collection efforts exhausted, it is practical to consider the customer as a debtor. The proper way to handle the issue is to establish a thoughtful and rational system that deals with every aspect of the receivables process.

Achieving such a goal requires adopting a best practices approach to collections. Such a plan includes:

  1. A consistent process of invoicing all customers
  2. Sending a simple notice after an invoice is five or ten days late
  3. Establishing clear criteria for when the item is turned over to a commercial debt collector.

Burt and Associates

There are, of course, a lot of details in establishing such a protocol. Yet, there are no real mysteries about what is required to properly manage your vital asset of accounts receivables. If your clients and customers understand up front that you are serious about getting paid for your products and services, they will expect you to be as reliable and professional in the area of debt collection as you are in all aspects of your business. In fact, other successful businesses expect no less from their suppliers and vendors.

The Role of the Commercial Debt Collector

While some view the need for using an outside debt collector to assist with receivables akin to a trip to the dentist, the fact is that they both play an essential role. Each has tools, skills and training to accomplish tasks we can’t effectively do ourselves. Once a customer demonstrates that they aren’t interested in resolving a debt by inaction or by ignoring your best efforts, it’s time for a professional to deal with the problem.

There are two major considerations concerning the issue of outsourcing your collection of overdue invoices. First is the need to be proactive. Going back to the issue of best practices, selecting a commercial debt collector firm that agrees with your company philosophies is an essential initial step. They will prove invaluable in establishing the entire process so that it is consistent and communicates clear expectations of prompt payment.

The second consideration lies in understanding that outsourcing a delinquent or bad debt to a third-party debt collector changes the dynamics of the process. These firms have a number of resources that they employ to increase the effectiveness of the debt collection process. Additionally, your company is freed from the concern, enabling you to focus on what you do best and accepting that a professional is now seeking to protect and recover your assets.

As with most challenges in business, planning and proactive processes provide the best possible solutions.

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