Accounts receivable is the last item a business owner wants to worry about, but is the first item to put an owner out of business. A study by the business credit bureau Cortera found nearly 14 percent of Nevada-based business accounts receivable are past due by 90 days or more. Total delinquencies in accounts receivable from business customers in the state run 19.5 percent, the study found.
Below are 10 simple steps all businesses should consider and implement when managing their respective past due accounts:
1. Have a defined credit policy. The first step is to clearly define when accounts are to be paid. If customers are not informed that accounts to be paid on time, chances are they’ll pay late or sometimes not at all. Make sure your terms of payment are clearly stated in writing to each customer.
2. Invoice promptly and send statements regularly. If your business doesn’t have a systematic invoicing and billing system, get one! Many times the customers haven’t paid simply because they haven’t been billed or reminded to pay in a timely manner. This situation frequently occurs in smaller or newer businesses where there isn’t enough staff to handle the invoicing and billing.
3. Use “Address Service Requested.” One of the most difficult collection problems is tracking down a customer who “skipped” or moved without informing your business of the new address. The U.S. Postal Service has a procedure to address this situation. Any statement or correspondence sent from a business should have the words “Address Service Requested” printed or stamped on the envelope, just below the return address in the top left corner. If a statement or invoice is sent to a customer who has moved, the Post Office will research this information. If they can locate a change of address, then they will send you business form No. 3547 with the correct address for a small fee. This helps keep the address file up to date.
4. Contact past-due accounts more frequently. No law says your business can contact a customer only once a month. The old adage “the squeaky wheel gets the grease” has a great deal of merit when it comes to collecting past due accounts. Contacting late payers every 10-14 days will enable your staff to diplomatically remind the customer of your terms of payment.
5. Use your aging sheet, not your feelings. Many businesses have let an account age beyond the point of ever being collected because they felt the customer would pay eventually. While there certainly are isolated cases of unusual situations, the truth is that if your business isn’t being paid, someone else probably is. Stick to your systematic plan of following up. Soon it will be apparent who intends to really pay and who doesn’t. Appropriate action can and should be taken once you know where your business stands.
6. Make sure your staff is trained. Even experienced staff members can sometimes become jaded when dealing with past due accounts. This usually occurs when the customer has made and broken promises for payment. Make sure the staff is firm, yet courteous when dealing with them. Your collection staff may benefit from customer service training because, in effect, they must sell your customer on the idea that your business expects to be paid. Your collection staff must be trained to not only bring the account current, but to also maintain good will.
7. Admit and correct any mistakes on your part. Sometimes customers don’t pay because they think your business has made a billing error, and if that’s the case, quickly admit and correct it. Generally, customers realize that mistakes can happen in business. Unfortunately, some customers believe that “the owner/president doesn’t need the money.” Denying an obvious error only feeds the fire of resentment your customer may already feel.
8. Follow the collection laws in your state. In many states, businesses are governed by the same collection laws as collection agencies. For example: calling to collect on an account at an odd hour or disclosing to a third party that a person owes your business money are just a couple of the collection practices that can cause serious repercussions. Contact the Nevada Division of Financial Institutions for any clarification on the collection laws.
9. Use a third party earlier. If your business has systematically pursued a past due account for 60-90 days from the due date and it still isn’t paid, the customer is sending a message. More than likely, your staff has requested payment four to six times in the form of phone calls, letters and statements. The time and financial resources budgeted for internal collection efforts should be focused within the first 90 days when the bulk of the accounts can and should be collected. From that point on, a third party can motivate a customer to pay in ways your business cannot, simply because the demand for payment is coming from someone other than your business.
10. Remember that nobody collects every account. Even with a carefully designed and administered collection plan, there are a few accounts that will never be collected. Save your business time and money by identifying these accounts early. At the same time, your business will benefit from improved cash flow from the vast majority of accounts that do pay.
The current economic climate is presenting businesses with a financial and moral dilemma where diplomacy has become the primary factor in dealing with past-due accounts. Developing and implementing a sound collections policy is a vital part of running a successful business. Follow these 10 simple steps, and watch your business thrive while retaining a diplomatic professional relationship with your customers.
James Gibson is northern Nevada specialist of Transworld Systems Inc., a collections agency. Contact him at 770-0144 or email@example.com.
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