By Dean Kaplan+
Collection agencies can help credit departments increase their collection productivity. Accounts receivable is a critical area in any company. Managing accounts receivable means that money is coming into the company coffers in a timely manner and delinquent accounts are kept to a minimum. This article is the first in a two part series on understanding and measuring collection productivity.
Every company wants to increase sales and profitability. An increase in sales means an increase in accounts receivable. Customers who pay promptly and keep placing new orders are a company’s dream. However, there are always customers who don’t pay on time, and collecting on these accounts receivable is paramount to keeping the company going. The credit department is typically responsible for accounts receivable collections, and attaining growth in accounts receivable collections is a realistic goal especially if sales are projected to grow.
There are several ways to attain growth in accounts receivable collections. The first occurs when sales grow. When sales grow, by definition, accounts receivables grow. This growth in accounts receivables will likely include some growth in delinquent accounts. The increase in delinquent accounts will cause an increase in potential collections. However, just because accounts receivables increase does not guarantee increased collections. The level of successful collections will depend on the quality of the outstanding debt (i.e., how collectable is the debt) and the skills of the debt collector. When sales are growing and staffing isn’t increasing to go along with the increase in collections, this may be a good time to hire a collection agency. Since commercial collection agencies typically work on a contingency basis, the value-added of using professional debt collectors can far exceed the dollars paid out to collect the debt.
Another way to promote accounts receivable collections growth is to improve the efficiency of the credit department’s debt collection process. This improvement in efficiency could be accomplished by technological enhancements such as installing an accounts receivable management system or by working with staff to make the collection process more streamlined and consistent. Either way, efficiencies can help improve accounts receivable collections and add to the company’s bottom line.
Reducing the number of people collecting the same amount of delinquent accounts receivable is another way to accomplish collections growth. This could go hand in hand with improving the efficiency of the debt collection process. If the process is more streamlined and efficient, it is likely that fewer debt collectors will be needed to collect the same amount of debt.
Accounts receivable are one of the largest assets of any company. The credit department’s responsibility for management of this asset puts it into the spotlight because of how important it is to a company’s profitability. Delinquent accounts receivable can put significant downward pressure on profitability making increased collection productivity a necessity. Collection agencies are experts on accounts receivable collections. It may be in the best interest of companies to consider hiring a collection agency when a boost in collections productivity is needed. The second article in this two part series will discuss how to measure the credit department’s collection productivity. Click here if you are ready to go to the second article Collection Agencies and Collection Productivity 2 Of 2.
The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.