It’s no wonder that businesses worry about past due accounts – nearly 70 percent of them that go beyond the 90-day mark are never collected. Knowing when to step up collection efforts can reduce the amount of receivables lingering in the overdue file.
Unfortunately, most small business owners struggle not only with when to go after overdue accounts, but how to go after them. Past due accounts create a fair amount of confusion in business owners because while they need that income to grow their business, they don’t want to come off as demanding in their efforts to collect. Many fear that if they push too hard, they’ll develop a bad reputation and lose business.
Business owners who have been there before and have found a solution advise others to develop an internal policy and procedures that address the subject of past due accounts. The procedure will include a list of items that must be carried out, such as when the first letter should be sent to the client advising them that their account is past due. Most small businesses will send out that letter within 30 to 45 days after the bill is past due. One effective measure involves following up on the letter with a cordial phone call.
At the 60-day point, it’s time send another letter (some will send a second letter at the 45-day point). This letter will request that payment be made in full or that the company is willing to meet with the client to determine why they can’t pay. Offering a payment plan is also an option at this point.
Should these measures fail to produce a payment out of the client, one final letter should be sent that advises them that failure to respond will result in your company exploring “any and all options” to collect on the debt. This could include litigation. As a general rule, most companies will take a client’s account to a collection agency if the total is $500 or less. Attorneys handle larger amounts as they can take judicial measures like wage garnishment to collect on the account.
Sending the account to a collection agency is a good course of action because it usually results in more positive cash flow. Collection agencies are professionals at recovering debt in an ethical manner that will not hurt the public image of the company they represent. The industry is highly regulated, which means falling out of line with government regulations results in harsh fines.
Most companies have a difficult time tracking down debts that are 90-plus days old. They don’t have the expertise to find the debtor, nor do they have the experience required to successfully arrange payment options if they actually do get lucky and find the debtor.
Omega-RMS, llc., is a company with four decades of experience in collections and account receivables management. The professionals at Omega have a variety of tools at their disposal and the expertise to use them to a positive end for their clients.