25th July 2014 Posted by Warren Paull
It is fortunate that the majority of businesses pay their invoices on time but, if they fall behind, you are legally entitled to recover your money. Good communication will initially allow the company and the customer to start negotiations for scheduling re-payments and develop a mutual understanding of the approach to be used. If the client refuses to pay the account, companies should have adequate and strict sets of procedures to follow. Good debt collection practices can ensure businesses meet the highest standards while adhering to all their policies to meet regulations and prevent being fined.
One of the first things companies must do when evaluating a delinquent account is to consider the amount of money owed, the time in delinquency and whether or not they should devote any resources to trying to recover the account. The pattern of payment should also be considered, as it can provide good insight when determining the approach to be used.
Credit managers should be able to identify potential threats and act swiftly and decisively. Usually the more time that passes, the less likely they are to recover the money. If you decide to write off small balances, over time they can add up; on the other hand, you can also be too persistent and hold on to the accounts for too long as they become inefficient and the efforts end up costing the company money. Therefore it is important to have a balanced strategy and take the right steps in order to be as efficient and successful as possible when collecting bad accounts.
Communication is vital when transacting with other businesses. From the beginning credit managers should maintain good rapport with the client while fully understanding their industry. This will make it easier to adapt and work with them if they fall behind on their payments. It is always important to maintain a high level of professionalism and due diligence as it can assure a long lasting partnership between both businesses.
A systematic approach is recommended in order to maximise the rate of return. Companies should have set guidelines on how to handle these accounts from beginning to end. Set guidelines should include when to call customers, when to send letters, etc. but it is up to credit managers to make sure procedures are followed and kept up to date.
A consistent approach should aim to minimize risks from the moment a sale is made; it can include discounts and incentives to customers to pay on time. This can prove to be beneficial to both as the savings can add up over time for the client and you get your money on time. However, if the account is past due more than the agreed terms, in some instances it will not be possible to keep your products or services flowing to the customer during the collection process. If you stop the flow of goods because payments remain outstanding, you should phone your customer or send an e mail reminder regarding the outstanding account and request payment.
Good follow-up will also reinforce the importance of the matter. The length of time between follow up should be as short as possible, keeping in mind to always maintain good judgment as to not overstep the line and harass the client. Finally, credit managers should send out payout plans in written form, with dates and payment amounts clearly stated.
While it is in your best interest to recover your money, you should not forget about maintaining a good business reputation and outstanding business relations. Choosing to outsource accounts and taking legal action should always be carefully considered. When you decide to outsource your accounts receivable you should focus on the overall expertise and collection success rate of the company.
Make sure you work with an agency that understands your business industry, the nature of your products or services and your specific needs. Some agencies have a track record of outstanding results but can be very expensive, whereas others may have an acceptable collection rate but charge less. The selection of a collection agency is critical - a large amount of money and reputation are at stake.
No matter if practices vary little from business to business, you should always use an organised and efficient approach to debt collection. A systematic approach is most efficient when properly implemented, ensuring your set policies and procedures help you minimise and foresee any potential risks that may arise.