Past due accounts are a struggle for every business. Do you know what to do to get the money that’s owed to you? Clients ARM has more than 30 years of experience handling accounts receivable and collections. With a collections rate of greater than 90%, we know a thing or two about helping businesses get paid. We also know that most businesses generally start out by keeping their collections process in-house. Because of that, we’ve put together the following 5 strategies to help businesses win the war on past due accounts.
All Businesses Should Create (and Follow) a Collections Timeline
It doesn’t matter if you work out of your home office, have a small office in the middle of town, or own a skyscraper downtown, you need to create and follow a collections timeline. You should create the timeline before you have past due accounts. Having it in place will give you a plan to follow when you need it.
A typical collections timeline will cover what happens to an account the day it goes past due, a week past due, 30 days past due, 60 days past due, 90 days past due, and thereafter. It’s your roadmap. For example, the day after an account goes past due, you’d likely make a courtesy phone call to remind the account holder that their account is past due. At seven days, you might send a letter and make phone calls. Somewhere between 30 and 90 days you’d determine if you want to involve a collections agency to help you. After 90 days, you would consider (depending on the amount owed) if you want to take legal action, write it off, or sell the debt.
Provide Payment Options to Past Due Account Holders
Providing payment options to past due account holders can help you get paid while reducing the likelihood that you’ll need to turn over the account to a collections agency. Offering payment options is good for your reputation, too. For long-term clients who developed a financial problem, you create goodwill and perhaps even solidify client loyalty. Those account holders may still refer people to your business because you worked with them. It may also keep those on the receiving end of the collections efforts from complaining about your business online. Negative reviews and negative comments on social media carry a lot of power, even if they’re not fully justified or only tell one side of the story.
Payment options may include weekly, bi-weekly, or monthly payments; reducing the amount owed and accepting a lump sum; or agreeing to remove late fees and other penalties. Remember that if you make payment arrangements, you’ll need to follow-up with the debtor when payments are due.
Treat the Past Due Account Holder Like a Human Being
People can get hostile during the collections process. Make sure that you treat the past due account holder like a human being. Don’t fly off the handle, insult, or threaten them. Failure to abide by the Fair Debt Collections Practices Act can cause you to face serious legal trouble.
Prevent Past Due Accounts Before They Happen
Unless you demand payment upfront for every transaction, there’s no way for you to prevent every past due account. If you plan to allow your clients to use credit, make sure that you take the necessary steps to create a credit policy that works for your business. Do not extend more credit than a client may be able to handle.
Have a Plan to Exercise Your Options
You have several options to collect on past due accounts. As we mentioned earlier, you have the ability to start by performing your own collections provided that you understand and follow certain federal and local laws. You also have the option of using a debt collection agency or a collections attorney. With a debt collections agency, you must decide if you want first-party collections or third-party collections. A debt collection agency will usually take a portion of what they collect on your behalf as payment. A collections lawyer isn’t right for every debt collection scenario. While there are other legal options they may be able to help you pursue, you must consider the cost of the lawyer and the potential court case to the amount of money that’s owed to you.
Ready to Learn More?
If you’re ready to learn more about preventing or collecting on past due accounts, give Clients ARM a call! We provide free, no obligation consultations. We’re happy to answer the questions you have about accounts receivable and collections.