Friday, August 10, 2007

Effective Account Receivable Practices

For any business owner or accounts receivable clerk, the knack for collections is almost as important to master as the ability to market your business. While we would all be on top of the game if our clients were to pay up front, that’s about as likely as Elvis singing Rap! In today’s economy, businesses extend credit without so much as a blink of an eye.

Keeping accurate records is essential in account receivables. Be certain that all information reflected in your bookkeeping records is backed up with a paper trail. It is imperative that there be a paper file for each of your accounts in the event your computer should fail. All communications (both verbal and written) should be reflected in your accounts files.

All contact information should be updated regularly. Each time you contact an account, verify the contact information is still accurate. If you are contacting a new account inquire if the person you are discussing payments with is the decision maker. Avoid dealing with the gate keeper, go straight to the source. If payments need to be approved with the CFO (predominately in larger businesses) then ask to speak with the CFO. Be sure to get the first and last name of the contact person along with their extension number to avoid the need to be transferred (or announced) the next time you call. It’s not unheard of that the person transferring your call will be instructed to “take a message”. Lastly, if you have always contacted Jack Frost in A/R and Jill Banks is now answering your call, inquire if Jack is still with the company.

In addition to compiling business information on each of your accounts, it is important to obtain as much personal information as well. If accounts become delinquent, a home phone number, cell number and home address may become useful. If a debtor is evading their financial obligations at work, an alternate form of contact will assist you in contacting them when they’ve let their guard down.

A home phone number may be screened for a number of reasons, however a cell phone is often answered promptly. Collection letters for a business that fails to respond to correspondences sent to the business may be sent to a home address. In the event it becomes necessary to pursue collections in court, a home address will assist a Process Server in having the debtor served.

Persistence is the key to successful collection efforts. Nobody wants constant reminders they’re behind in their financial obligations. Be consistent but polite, we’ve all had our share of ups and downs where our finances are concerned. Treat debtors with respect as opposed to second class citizens. The old adage holds true, “you get more with sugar than you do with vinegar”. If you prod and harass a debtor they may become spiteful and determined to make your life miserable. There are laws and regulations collectors must adhere to that are mandated by the FDCPA. While the FDCPA predominately pertains to third party collectors, and not to businesses collecting on their own accounts, you don’t want to risk your businesses reputation. The bottom line is you want your invoice on top of the priority list as opposed to being buried never to be seen again.

If you have a client that is experiencing cash flow issues it is in your best interest to work with them. Often times a debtor that doesn’t have the cash flow to pay the note when it becomes due will set it aside to pay later. Offer to arrange a payment schedule to assist them in bringing their account current. While we would all like to be paid in full every time, things happen and receiving consistent payments is better than not receiving any payments at all. Maintain records of when your accounts become due. Contact the account immediately once the account becomes delinquent. The longer you allow an account to get behind, the harder it will be for you to recover your money.

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