Tips for awesome A/R collections

December 28, 2010

This article addresses collection of business accounts (B2B transactions). If you extend credit terms to consumers you must follow a very large set of rules set forth by the Federal Trade Commission and possibly (if you are a Texas business) the Texas Office of Consumer Credit Commissioner.

If you sell a product or service on credit terms you must have a strategy to make sure you get paid because having high bad debt write offs can significantly impact your bottom line profit and could drive you out of business.

Strategies for handling collections from your customer base:

Make sure your customers have the right expectations at the beginning. Start by providing your credit terms to your customers in writing. If terms are net 30, make sure your customer knows that doesn’t mean they can regularly pay in 45 or 50 days. Obviously you must balance the customary practices of your industry with your need to get paid, but if you give your customer a good product or service and expect to be paid in a timely manner, you can train them to pay on time. During the last several years, businesses that have allowed a business customer to go significantly beyond terms have decreased. You can train your customer to pay you within terms or only slightly past due. Most businesses are happy with a customer that pays them within 15 days of terms. Beginning on the 16th day of being past due, collection calls should start. These can be friendly calls. Don’t back your customer in a corner, but don’t let them regularly make excuses like they never got the invoice or had a problem with the order.

Let technology work in your favor. You can have a whole host of collection tools at your disposal if you bank with the Business Bank of Texas. For example, you can set up ACH debit and offer to take a payment by phone where you initiate an electronic debit of the amount past due from their account automatically. Functionally the process is very easy. You simply log on to a gateway, enter the customer’s name and bank information and submit the transaction to be processed. Generally you will receive the funds into your Business Bank of Texas bank account within two business days. If you are a business (for example a leasing ompany) you can set up regular recurring debits from a customer account on a specific day of the month. This saves time and money and improves cash flow.

Even if you aren’t a consumer business you can set up a credit card acceptance account so you can offer past due accounts the ability to pay by credit card. Having ACH debit and the ability to accept a credit card can dramatically improve your collection activity, while giving your customer an easy way to pay.

Sugar works better than vinegar. When collecting from existing accounts you need to maintain a good working relationship with, a soft but persistent approach works best. The easiest kind of calls to make are when an account that has been past due several months suddenly gets on track and pays within terms. Call them and thank them and make sure they know you recognized their prompt payment.

When soft collections don’t work. Every company will occasionally have an account that simply stops paying. You may notice this because they also stop buying from you at the same time. If you are a member of a credit bureau make sure you report the outstanding obligation. You may have to turn the account over to a collection agency for handling. It is important to turn over a collection account as soon as you believe it makes sense to do so. The sooner a collection agency gets the referral the more dollars they can collect for you. When picking a collection agency choose one that best fits your company personality. Even among collection agencies there are those that strong arm and those that find more success treating collections with a deft hand. There are several reputable industry associations that better collection agencies belong to including the Commercial Collection Agency Association and National Association of Credit Managers of Texas.

Check references of any agency you plan to engage, and above all make sure the agency and you both have the same expectations of how your collection accounts will be handled.

Collections don’t have to be difficult if you have a strategy and the right tools to assist you in keeping your accounts receivable as clean as possible

Topics: Business Best Practices, Customer Service, Accounting & Finance

DJ Lewis

Business Bank of Texas

D. J. Lewis is First Sr. Vice President, Business Bank of Texas, N.A. D.J. is responsible for business development and relationship management for Business Bank of Texas, N.A. He graduated in 1993 from the University of Houston with a BBA in Accounting. While attending college he started his career in banking working at a small Savings and Loan. In 1991 that same Savings and Loan was acquired by a large national bank. Soon after the acquisition, D.J. took advantage of an opportunity to transfer to Austin where he has called home for the past 15 years. After 19 years with a large national bank D. J. was presented with another opportunity and made the decision in October 2010 to start a career with Business Bank of Texas, N.A. D. J.’s 22 years of banking experience includes 7 years in bank operations, 6 years as a Branch Manager, 6 years as a Commercial Lender, and 3 years as a SBA Lender.
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