Bad Debt Collection In-House – Keys to Getting It Right

Posted by Marilyn Miller on March 20, 2017  /   Posted in Uncategorized

Many small business owners spend a good deal of time trying to get the lowest rate from their collection agency. Others will do nothing to collect on their own, yet will be reluctant to send it for outside collection. Both approaches are short sighted, and could sabotage bad debt recovery efforts and be disastrous for cash flow.

bad_debt_collection_in-houseOne way to cut down on the cost of debt collection is to make a concerted effort to collect as much as you can in-house. Your goal should be to send fewer accounts to your collection agency or attorney. You can accomplish this by putting together a program to monitor your accounts receivable aging and by following the program faithfully.

Your first step is to establish a regular review of your accounts receivables. You or someone you designate should be assigned with this task, and it must be a priority. This first step will drive the whole process.

Next, establish a procedure for following up on delinquent accounts. We suggest the following:

1.       Compose 2 or three collection letters of increasing urgency. Note the word urgency – no anger or threatening. Be firm and specific.  Generally, you would send letters at 30, 60 and 90 days past due, but you can set the schedule that works for you.

2.       Calls to follow up with selected customers.  Use someone with either a relation to the customer, or a position of authority to make the calls. Let delinquent customer know that the issue is being escalated in your organization.

3.       Decide how long you are willing to wait before getting outside help. You can use the same “drop dead” date for all delinquent customers or allow a little more time for long time customers. However, it is very important to stick to the timeline once you set it.

4.       Set your flowchart for the process. Communicate it to all in your organization. It is very important that you discontinue new sales to these customers at this time, or at very least make certain the files are marked so that any new sales requests become an opportunity to collect past due sums.

5.       Hire a collection agency or attorney. While you will cut down on the files you need to send them, you must be ready to move on and refer for outside collections when the time is right. Develop a checklist to make sure you give your agency all the information they need to do their job.

6.       Continuously monitor your results and adjust as necessary.

 Remember the 3C’s –  Communication, Clarity, Commitment and Consistency:

 ·         Communicate your process within your organization. Make sure everyone understands their role in the process.

·         Be clear with customers about your payment expectation.

·         Commit to the process. Be flexible and adjust when you need to, but remember your goal is to get paid. No one likes confrontation and in some cases it is unavoidable, but confrontation can be minimized with the right approach, and in any case should not keep you from collecting what is due to you.

·         Consistency is likely the hardest of all, but the more you standardize the process, the easier it will become.

 

 

 

 

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