Once you make the decision to extend credit, you need to
carefully monitor the status of your receivables (the term for
money owed to a business). In most cases, the longer an account
goes unpaid, the more difficult it will be to ultimately
collect.
Uhlman recommends using a computer-based accounting package that
can generate invoices, issue statements, track payments and create
aging reports. Aging reports are important because they give you an
overview of how much money is owed to you, and how long the
specific amounts have been outstanding. You should review them at
least once a month, and be prepared to implement your collection
procedures early. "There are a number of good software
packages on the market," Uhlman points out. "Your
accountant or computer consultant can help you choose the best one
for your business."
In any collection situation, Uhlman says, the first thing you
must do is establish that there is a legitimate debt.
"Confirm that there is no dispute over the amount charged, the
quality of the product or service, or anything else," Uhlman
advises. The best time to do that is immediately after the sale,
and you can even incorporate this step into your quality control
and customer service procedures.
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"Within a day or two after the product has been delivered
or the service performed, call the customer and confirm that
everything is satisfactory," Uhlman says. "You should
also restate the amount due and get a commitment for payment.
It's an extra step, but it's amazing what it will do for
reducing the number of disputed accounts, which can be much more
difficult to resolve 30, 60 or 90 days later."
Scott says there are four stages to the collection process: the
notification or polite reminder; the discussion; the
"push," or firm demand; and the "bitter
end."
Use these stages to determine a standard time line for your
collection efforts. Just as you may have different requirements for
extending credit based on the size and nature of a particular
account, you may approach collections from different angles
depending on the amount of the debt. What's important, Scott
says, is that you determine a procedure and apply it consistently,
which prevents you from having to hear, "You didn't call
me last month when I was late."
The notification stage may consist of a reminder notice or
perhaps even a brief phone call. Take a positive, upbeat approach.
You might say something like, "Our records indicate this bill
has not been paid; can you check on it?" Typically, you want
to do this five days after the account becomes past due.
During the discussion stage, you need to find out why the debtor
has not paid and motivate them to get the account current. Scott
says this stage can last from 15 to 45 days. During this time, you
may discover information about your customer's circumstances
that could influence your decision to grant further credit.
When you reach the third stage, you must strengthen your demand
for payment. If possible, have someone else in the company try
calling; a different approach may work. Scott recommends limiting
this stage to 10 days, then moving to the bitter end stage, when
the account is turned over to a collection agency, referred to an
attorney for suit, or taken to small claims court. Collection
activities are regulated by both federal and state laws. In
general, Scott says, you should avoid any falsehoods,
misrepresentation, deceptive practices, harassment or abuse of the
debtor, or invasion of the debtor's privacy.
Check with an attorney familiar with the appropriate laws before
implementing your collection strategy. Scott says persistence is
often the key to successful collections. "Remember, it's
your money," she adds, "and you don't make
money until you're paid."
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