Issue link: https://read.dmtmag.com/i/65232
How to ensure better collection of receivables. By SvenBy Sven Nelson, C2C Resources, LLC Avoiding Bad Debts o matter how well you think you know your customers, you are always going to have that 1 to 2 percent a month who y are not going to pay you within your terms. In most cases, these are not companies that started out with the intention of not paying you, but perhaps they became over extended and have to selectively pay their bills. Un- fortunately, they have decided not to pay you. Is it because they do not like you and are picking on you? Probably not. The fact is, another company made payment of its invoice priority before you did. How did they do that? In these tough economic times, it is more important than ever to make your 30- to 60-day-old receivables a priority so they do not become a problem. I have developed three easy steps to help your business maintain a high level of importance in your client's mind to ensure you are paid in a timely manner. Have a dedicated system for collections. Here is the recommended collections timeline: Ten days after sending the invoice, call to make sure the client received it and that there were not any problems. Thirty-five days after the sale, send a past due notice and make a follow-up call. Sixty days after the sale, send a termination of credit letter, place the account on COD and make a follow-up call. Eighty days after the sale, send a certified letter with a 10- day final demand. Ninety days after the sale, send the invoice to collections. This timeline may not work for some because every com- pany has different terms and opinions on what is acceptable. However, if you are writing off more bad debt than you are comfortable with, you may need to look more closely at your collections policy and decide if it is really working. Avoid nonsense excuses. There are two excuses I hear most often when trying to col- lect a debt. The first is: "We never got the invoice." The second, usually given after 90 days, is: "There is something wrong with the product (or service) that we received." If there was really something wrong, why wasn't it mentioned earlier? Usually, this second excuse is a stall tactic. I recommend to my clients that 10 days after the invoice has 42 gone out, have someone in accounting make a call to the customer to make sure he (or she) got the invoice and that the product or service he received was exactly what he ordered and was expecting. This eliminates a nonsense excuse down the road and may even get you another order. Final means final. When it comes to collecting debts, many companies find themselves in a vicious cycle of doing the same things over and over again while expecting different results. Remember, you are not the only one who is trying to collect from your customer. The customer may only have a "6-inch pile of money," but a "12- inch stack of bills." How do you get your invoice to the top of the "pay now" pile? Do something different than everyone else. This may include placing the account with a third party for collections. Before you do this, make sure you have sent a final demand for payment via certified mail or e-mail with a read receipt so you know it was received. When you do send a final demand, make sure you only send one. After all, "final is final." You do not know how many companies I have seen send four or five different "final demands," then months later, place the account for collection, only to find out that the company they are trying to collect from went out of business months ago. Keep in mind that final demands are your final request for payment. Once the final demand is ignored, you must take action to maintain credibility. If you do not follow through with some action, any further demands for payment will not be taken seriously. Remember, a sale is only complete once you have received payment. Sven Nelson is a senior account executive with C2C Resources LLC, Overland Park, Kan., which offers nationwide and international collections services. For the last 12 years, Nelson has worked in the business and consumer finance industries helping clients to secure financing on capital purchases and reduce overhead and excessive fees. He also helps clients develop credit and collections policies and procedures, and recover lost funds. IDA members receive a discount on C2C Resources' services. Nelson can be reached at 866-341-6316 or snelson@c2cresources.com. Visit us at: www.C2CResources.com IDA UNIVERSAL May-June 2012