Provided by Transworld Systems, Inc.
Because of debtor psychology, statistics show that after a client has been billed two or three times and still has not paid at 60 or 90 days past due, a polite third party is often more successful at recovery. But before account receivables get to that point, there are several steps to take to ensure a healthy cash flow.
1. Have a well defined credit policy. Make sure your terms are clear to your customers as well as any finance charges or discounts for early payment. Be consistent from customer to customer. You do good work – you deserve to get paid.
2. Ask for payment when service is provided. This suggestion applies to contractors mostly but can be used in any service business. Customers are most motivated to pay right when you have provided service to them. Accepting credit cards can help in this area. If they can’t pay now, arrange reasonable terms now rather than waiting until they are delinquent.
3. Invoice and bill promptly. If there is any area of your business that needs to be organized, this is it. Slow billing is a major cause of delinquent accounts. Your customers owe money to lots of people. You want to be high on the “to pay” list.
4. Use an “address service requested” stamp or pre-print one on your billing envelopes. This will get your mail forwarded and a corrected address back to you if necessary.
5. Contact overdue accounts more frequently. Use a “courtesy call” to make sure your customer was satisfied with your work. This will eliminate slow and no-pays later.
6. Develop a systematic plan to follow-up on past dues. You don’t need to be a big company to have a delinquent account policy – you just have to want to be a big company! Decide when you will call, send a past-due letter, or use a collection agency.
7. Use your delinquent account aging sheet, not your “feelings,” to make account receivable decisions. Previous history with customers can influence your pursuit of delinquents. Stick with your policy – the other people your customer is paying stick with theirs.
8. Follow the federal collection laws. There are stipulations such as time of calls, what you can say, threatening legal actions, etc., that you must abide by. Remember, the laws are exactly the same for your company as they are for collection agencies.
9. Use a collection agency sooner. If you have followed your policies past the 90 days point – have sent an invoice, a couple of statements, and made a phone call or two – you probably know that they are not going to pay through your own internal efforts. Be careful about paying a percentage – many collection agencies charge as much as 30 or 40 percent! There are agencies that work on a flat fee, charging per account rather than cutting into your profit margin with a big percentage.
10. Remember that 100 percent collections is not a reasonable goal. You will have write-offs, it’s just part of doing business. The key is to limit the exposure your business has to past-due accounts. Using these 10 points will give you a big head start towards limiting your losses in this critical area.
April 2003 Render