Get your Aged Receivables out of Retirement
by: Terri Shepherd
Are your receivables all sitting in retirement? Write-offs. Charge-offs. Aging.
How did that happen? Everyone is busy in these challenging times. Companies are trying to do more with less. Revenue is down and receivables continue to rise and terms become longer and longer.
Cutting costs is one of the first things companies do in difficult times; labor cuts, reduce travel, spending freeze. But are you looking at potential cash sitting in your books? What is your Daily Sales Outstanding (DSO)? Cash is king. By reducing your DSO you immediately improve cash flow.
Many factors affect DSO. Let’s start at the beginning. How did you determine your credit decision in the first place? Validated, repeatable processes on credit decisions are critical to managing the process. Know who you are doing business with. Develop a scorecard to assess potential new customers. Get as much information as possible by utilizing a one-page application that includes a personal guaranty.
Monitor the relationship. Grade or rate your customers by risk. Focus your resources on monitoring and following up on the high risk clients. Set up an automated system to alert you if a current customer experiences any changes to their financial or management status. You may still extend credit to high risk customers, but then it is critical that the relationship is very closely monitored and priced accordingly.
Review limits and terms when necessary. When red flags start to occur, protect yourself. Lower your credit limit, shorten terms, or stop providing goods and services.
If the accounts continue to age, centralize a collection process. It is important to have a collection process separate from your credit process and separate from sales. Don’t expect your sales team to collect on your aging. They will probably be the worst person to truly get that money collected. Systems and procedures are important for the collection phase. Follow up and consistency will pay off. Keep all documentation. This is important if the matter is later sent for legal action.
Outsource the aging sooner rather than later. The longer you wait to send to a professional collection agency, the higher your fees will be and the longer you will have to wait for your money back. Forwarding to an agency should not be the last resort.
When is the right time to send out to an agency? Some credit managers don’t want to give up the accounts, thinking they will have a cost associated with collecting that will be higher than the value of the potential money that is recovered. Forward when the following start occurring: 1) Repeated, unanswered phone calls. 2) Two or more broken promises. 3) Repeatedly asks for documentation. 4) Suddenly disputes goods and services.
When hiring a collection agency, the relationship, resources, and tools they provide are critical. Both you and your agency have the same goal; to recover as much money back as possible. Money recovered back to you is more important than the contingency fee the agency charges. Working together and building trust will form a win-win relationship with your agency and your stakeholders.
Develop a System, Develop a Process. Manage the files diligently and forward to an agency in a timely manner. Follow these simple guidelines and get your receivables out of retirement!
Terri Shepherd is CEO of Xact! Resources, Inc--24 years of providing collection solutions. Contact her for more information or questions about information in this article. 952-808-0880 or terris@xactresources.com
