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Receivables Overdue - How Do I Collect?
Question: How do I collect overdue account receivables? One of the problems of my business is that there are many of my regular customers who take longer than 30 days to pay. My creditors have trouble giving me 30 days, so I get squeezed.
Answer: A frequently overlooked part of managing cash flow is managing receivables and payables. A part of the essential cash management reporting a business owner receives should be an accurate listing of accounts payable and accounts receivable. These should be aged or there should be an obvious way to view the time elements of each account. The problem starts with the granting of credit status. If payment is not received before or during the customer's receipt of your product, there is a credit sale. Credit should not be granted automatically, and, when granted the expectation of the time of payment should be clearly stated.
Accounts receivable should reflect billings that state the terms of payment. If no discounts are offered for early payment, then the invoicing should state that accounts are “immediately due and payable.” Contact those who owe you money when the payment is due. The first contact can be to insure that the invoice was received and that there are no questions. Confirm that the customer agrees that the amount is due and is in the process of being paid. If payment is not received, the next contact should be to determine when payment will be received. Any past due receivable should be the subject of a telephone contact each week until it is paid.
Ideally, the following policies should be in place:
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Classifying customers (clients) by behavior and risk
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Documentation of rules for collection processes
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Using the same employee-contact to work each overdue receivable
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Accurate reports of accounts receivable and payable reviewed by executives
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Linking employee incentives to accounts receivable status
For any overdue receivable, it is important to establish direct contact at least by telephone or, if possible, in person. Maintain the customer's dignity. Initially re-establish that the amount is properly due and should be paid. When the customer is able to pay, make the customer want to pay you first. Generally that is not done through making demands. If issues are raised after prior acknowledgements that amounts are properly due, these issues should be handled directly and with courtesy at the appropriate executive level. Try to obtain dates when payment can be made. If appropriate, try to get a payment program started so that payment will be completed within a set period (for example, 90 days). The most important message to convey is that you are keeping track of the status, will continue to contact, and want to be paid as soon as possible.