With the softening economy, we have witnessed a sharp increase in the number of calls from clients seeking to collect long overdue balances from delinquent customers. While we are generally very successful in collecting overdue accounts from our clients, there are ways to prevent having to call us at all.
Overdue receivables generally do not come on suddenly, but instead, are the result of a gradual and recognizable trend which can be spotted through close monitoring. Most businesses typically require payment for goods or services within thirty days of invoice, with some offering a discount for payment within ten days. Aged receivables should be tracked monthly. When outstanding balances start creeping up, that is usually a signal that customers are not remaining current. The only way a customer’s balance can increase from month to month is through larger purchases or failure to pay for old purchases. In a declining economy, it is unlikely that customers are making larger purchases; it is more likely that the customer is not paying his bill on time.
By allowing your receivables to creep up, you are effectively financing your customer’s business, often interest-free. Psychologically, when a customer becomes accustomed to paying late, with no penalty, late payment will become the norm. If all of your customers pay late, you will be late in paying your bills. A vicious cycle is established.
The best run small businesses keep watch over their receivables like a hawk. At the first sign of trouble the customer is contacted and a determination is made whether to continue selling to that customer on credit. Some customers are put on “C.O.D.” until their account status is brought into line.
Remember, there are three possible scenarios in business. Your goods leave the shelf in exchange for full and prompt payment. That is the best outcome. The second possibility is that your goods do not leave the shelf and you receive no payment. That outcome is not nearly as distasteful as having the goods leave your shelf without ever being paid.
— Kevin Palmer