Magazine article Business Credit

Collections Q&A

Magazine article Business Credit

Collections Q&A

Article excerpt

I have difficulty dealing with those accounts that are having financial problems--the ones that say they'll send "whatever they can" every two weeks. The cash comes in for a month and then slowly comes in further apart at smaller amounts. At that point, I am back to square one. It's not only frustrating to have to start all over, but I also feel that somehow the customer now has control of the account. When do you determine that it's more efficient to the company to send the customer to an outside agency as opposed to accepting their small payments?

-Vicky Zyra, Pittsburgh, PA

When a customer agrees to a payment schedule-follows it for a while, tapers off, picks it up again when you call-indeed you are correct, they are controlling the account.

However, nothing is black and white in collections or you would be sending every delinquent account off to an attorney or collection agency. Each collection must be considered on an individual basis, but there are things you can do so that you don't have to relinquish control of the account to the customer.

First and foremost, if an ongoing customer gets behind and is not meeting their payment commitments, all future services or sales should require payment in advance or COD (collect on delivery). You do not want to add to your receivable. This should be explained to the customer, verbally and in writing. Remember, it is much easier for the customer to dispute a verbal message than a written one and documentation protects you legally if you find yourself in a court of law trying to collect your fees. Putting a customer on COD establishes that you have a tight accounts receivable program in place and sends the message that your company is not willing to add to a receivable that is over 45 days old (or whatever your policy happens to be). If you work for a company that continues to add to the receivable for customers like this, you are fighting a losing battle and will probably end up sending the receivable to collections in the long run. After all, how important can it be that you get paid when you are willing to continue to provide service and add to the receivable? If it is not important to you, do not expect it to be important to them.

If you do place a customer on COD, it usually requires diligent follow up on your part to collect the past due balance. What if they are still COD customers, but continue to renege on their payments or do not send an acceptable amount on the old balance? That is when you should insist that they not only pay COD for future services, but they also must pay down a certain portion of their past due receivable. You specify the acceptable amount. There is little incentive for them to pay off their old balance when you are allowing them to continue running "business as usual" with your company by paying COD.

If the debtor is no longer a client and you are trying to collect their past due balance so you can close out their account, put them on a weekly or monthly payment plan that will work for both of you. Always throw out a number that is much higher than what you would accept and go from there. If you are speaking with someone who has a $5,000 balance, explain that you cannot accept less than $500/month or you will be forced to turn their account over to collections in accordance with your corporate policy. …

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