How to Collect More Delinquent Accounts In-House
A recent survey conducted by the Credit Research Foundation (CRF) — National Summary of Domestic Trade Receivables — revealed that on average 87% of accounts are current, while 0.4% are over 90 days past due.
Obviously, current accounts are not an issue. And, it’s a given that those over 90 days past due should be placed with a professional collection firm, or written off, based upon your company’s business rules.
But what about that 12.6% that fall in the middle. Those that are past due, but not yet candidates for third party collections?
Here are some tips for managing those delinquent accounts – and increasing your chance of recovering them before they hit that 91 day deadline and need to be handed off to your collection agency.
Improving Your Chances of Collecting Past Due Receivables In-House
Tip #1 – Develop a well-thought-out, detailed Credit Policy:
The collection process begins with your credit policy. Requirements for extending credit, your terms and conditions, and the actions that will be taken when an account becomes delinquent should be clearly laid out. Your sales and service people, as well as credit and collections, should be well versed with your credit policy. They should also be trained to explain the policy to new clients. Better yet, you should have a document outlining this information to be provided to all clients before making any credit sale.
Tip #2 – Customize your invoice to promote payment:
The quality of your invoice has the most impact on whether and when payment will be made. The primary goal of your invoice? Make it easy for the buyer to pay. Here’s how.
- Keep the format consistent so that the buyer knows where to find essential information.
- Provide all information the buyer will require to make payment including:
- The word “Invoice” – so there can be no question of the purpose of the document
- Your remittance address and contact details
- Your Employer Identification Number (EIN) or Tax ID number
- Purchase Order number (if there is a purchase order)
- Date of the Invoice and unique referenced ID #
- Clear description of the products/services provided, including the date of service or date the product was sent or delivered
- Total Amount Due – itemized, including charges per unit (if applicable)
- Tax Payments, if relevant (GST and VAT)
- Date Payment Due – statistics show that customers tend to pay on time most often when a specific date for payment is included on the invoice, rather than “Due Upon Receipt” or “Payment Due within 30 Days”
- Payment terms
Tip #3 – Follow-up on invoices before they become due:
This will not only help avoid delinquencies, it may actually improve rapport with your customers. A call shortly after the products were to arrive or before the invoice due date is an effective customer service contact, as well as a reminder of payment. Ask if everything arrived on time, if there are any issues or questions, if the invoice is clear and accurate – and, of course, if the invoice has been or will soon be scheduled for payment.
While on the call, remind the customer of the terms and the due date. Specifically, inquire if they can foresee any reasons why the invoice wouldn’t be paid within terms.
Important! Keep a record of your customer’s responses.
Tip #4 – Assign a risk classification to delinquent accounts to help prioritize your in-house collection efforts:
For instance, historically slow-paying accounts would be classified differently than new customers, for which you have no payment experience. A new customer becoming delinquent is a higher risk than the long-term customer that habitually pays at 30 days past due.
Tip #5 – Develop a specific in-house collection treatment plan:
Having a plan in place will create consistency and remove guesswork. Set up different treatment plans for different levels of risk. Provide standard templates for written communication and scripts, or talking points, for person-to-person contact. This kind of preparation will make your collection efforts more effective and less stressful.
Sample Treatment Plan
|Large Accounts > $xxxx||Small Accounts < $xxxx|
|0-30||Sales/Customer Service Call and reminder 5 days after delivery, or 5-7 days prior to due date||*Customer Service Survey and reminder sent 5 days after delivery or 7-10 days prior to due date|
|35-40||Reminder Call #1 followed by email outlining results of call||Reminder Email or Letter #1|
|45-50||Reminder Call #2 followed by email outlining results of call||Reminder Email or Letter #2|
|55-60||Escalation Call by creditor supervisor to debtor manager||Reminder Email or Letter #3|
|65-70||Final Demand Collection Call followed by Final Demand Email or Letter||Final Demand Call followed by Final Demand Email Letter|
|80-85||Refer to collection agency||Refer to collection agency or recommend write-off|
*The Customer Service Survey would ask the same questions that would be asked in the Customer Service call to large accounts. This could be mailed (with a postage-paid return envelope), emailed, or faxed.
Tip #6 – Consider outsourcing your pre-90 day past due accounts:
Implementing a detailed credit policy and invoice (Tips 1 & 2) are basic to managing and collecting your accounts. However, if your time and resources are limited, a first-party collection agency may be the answer. These companies – and there are a number that will handle small business accounts – can transparently act on your behalf, carrying out Tips 3 through 5
Tip #7 – Keep accurate, up-to-date credit files and payment histories on your customers:
Watch for changes in payment patterns. If you see them deteriorating, take immediate action. Proactively contacting the customer can save future problems for you and, perhaps, you can help a historically good customer get through a rough patch.
Tip #8 – Do not continue to extend credit to delinquent customers:
If you want to keep the customer, negotiate some middle ground. For instance, require cash up front until the delinquency is cleared.
Tip #9 – Know when to let go:
There comes a time when you need to increase the pressure to pay by sending the debtor to the professional collection agency. But, how do you know when to let go?
- If the customer doesn’t return your calls or respond to your contacts, send it to the agency ASAP. They may be in the process of skipping out.
- If a payment promise is broken, it’s time to move on. Your further efforts will likely result in nothing. Pass it along to your agency.
- The probability of collecting a delinquent account drops dramatically with the length of the delinquency. According to a survey of the members of the Commercial Collection Agencies of America (CCA of A), the probability of collecting an account 90 days past due drops to just 68.9%. At 6 months past due, there is only a 51.3% chance of collection. If the account ages to 1 year past due, the likelihood of a successful collection is 21.4%. Most sources consider 90 days past due the optimal time for sending your account to a collection agency.
While making the sale can be a heady experience, if the cash isn’t collected you can end up with a huge headache. Planning for delinquencies and developing a proactive, detailed and consistent strategy for handling them – before they happen – will help ensure that past due accounts don’t strangle your cash flow and become threats to your very survival.
Check out these other commercial collection tips and articles on our website:
- 13 Strategies to Speed up Collections
- 9 Steps to Help Your OCA Help You
- Collecting By Phone: The Three Step Process
- Collection Litigation: Court Costs and Suit Fees
- Evaluating Your OCA’s Performance
- Nine Guidelines for Selecting the Right Collection Agency
- Payment Plan Negotiations
- Regulating Commercial Debt Collection
- Six Tips for Making Collection Calls that Get Results
- The ABCs of Telephone Collections
- Top 10 Reasons Customers Delay Payments
- Using an OCA to Execute Debtor Judgments
- Working with an OCA
For more information on how our commercial collection agency can help your business contact us at 844.937.3268 today!