By Dean Kaplan+
In any debt collection situation, the first and most important step for the credit department is to make sure that the customer is truly delinquent. A customer may not be making timely payments for a variety of reasons, some of which may be a result of things happening within your company. When a customer comes up with a delinquent red flag, take all necessary steps to look in-house for things such as checks which are waiting to be applied, ongoing disputes involving billing or merchandise, unused credits for returned merchandise or adjustments and any verbal agreements between the customer and a sales rep. This is the third article in a six part series of articles about the principles of in-house debt collections. This article will discuss when the debt collector should start the collection process.
The debt collection process officially begins when the customer invoice is sent. In order to minimize past due invoices, make sure your invoicing system clearly states the terms of the sale. The customer should be able to look at the invoice and know exactly when the payment is due, how much is due, and where to mail or electronically send the payment. Another key to keeping customers on track with the remittance requirements is to send out all invoices promptly, preferably on the day of product shipment. Finally, all of the customer’s invoicing requirements such as correct billing address, duplicate invoices, etc. must be followed to the letter in order to minimize adjustments.
Exactly when the credit department deems an invoice overdue and in need of collection varies depending on the terms of the sale, the company’s competitive position, and the financial needs of your customer. Some industries notoriously extend terms to their customers by not following up on past due invoices for 30 to 45 days after they are due. Companies that dominate in an industry are more apt to receive timely payments from customers than small companies or companies entering a new market.
Collection methods must be adjusted to fit the specifics of the past due situation. However, the timing of the start of the collection process should not be left up to individual debt collectors. Instead, guidelines should be clearly defined in the company’s credit policy. If your company has a wide range of products with different types of customers and terms of sale, the collection process should be specific to those differences.
It might make sense for the credit department to develop a collection schedule for the debt collectors which might include a timeline for when to send the first over due letter, make the first phone call, make additional phone calls, place a credit hold, send another reminder letter, send the final demand letter and turn over to an outside commercial collection agency.
In general, more frequent contact is warranted, the longer past due the customer is. In addition, as more and more collection calls are made, the tone of the debt collector should become increasingly demanding. When prioritizing the collection calls, the largest accounts should be given the highest priority, especially if staffing is tight.
Studies show that the older an overdue account is, the less likely that the collection will be successful. The best strategy for the debt collector is to put the effort in to collect as soon as possible after the due date. It has been shown that often customers don’t pay until after they receive contact from the credit department. They are under the impression that companies really don’t care if customers are slow payers. Many customers determine which companies they can get extended credit from and which ones require timely payments. Based upon this data, getting the collection process started sooner will benefit most company’s bottom line.
In the case of a long-standing large customer that suddenly goes delinquent for the first time, make contact as soon as possible after the account is past due. Find out what is going on, and make every effort to work with the customer to get them paying again. The human touch along with timely collection contacts are important parts of the collection process, and can make accounts receivable collections more successful.
Click here if you are ready to go on to the next article in this six part series In-House Debt Collection Considerations 4 of 6.
Be sure to check out the other articles in this series:
In-House Debt Collection Considerations
- Things to Consider Before Starting Debt Collection
- Four Steps to Collection Success
- When to Start The Collection Process
- Making Contact
- Following Up On Collections
- Additional Collection Techniques
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.