In today’s changing world, we have to properly secure our assets. This starts on day one when the sales force brings forward the new client. At this point it is important to “know your customer” and especially the customer’s ability to pay within terms. Each company is different in that some have the ability to absorb the slow payers while others are hurt when a customer pays poorly. Every sale changes the DSO ratio ever so slightly. The quicker you turn your asset back into the profit the faster you may be able to grow your business. However, on the flip side, a poor payer will cause your DSO to climb and weaken your ability to grow.

After you are satisfied the customer has the ability to pay and their credit reflects what you are looking for in a business partner, it is time to gather your paperwork. Do you have a credit application? Have you thought about a PG? These questions, while seemly invasive, go a long way in helping you when trying to collect on a nonperforming asset. Even if you do everything right up front the chance still exists the customer may default at some level. If this occurs your A/R process will then make or break your ability to get your money.

First contact after your Net terms expire is key, is it an oversight? Was the check lost? Or did the customer over extend their own position. Once you see the late payment you need to make contact by phone and let them know you noticed. This will lead to the initial stall or payment from the customer. Assuming the customer provides a stall you should follow up with a secondary letter and another copy of the invoice. This action is often enough to get paid, if not, then another call must be made to the customer for a follow up demand for payment.

By the time the customer reaches 45 days past due, your chances of timely recovery is fading fast. A 45 day letter advising the customer of their lateness and your resolve to recover the debt should occur immediately. This action in conjunction with an additional call may solve the problem and recover your payment. It is important to realize the tighter these steps are the better your recovery will be. Each step will touch a nerve with your customer and drive your DSO in the correct direction.

Finally, when your debt has reached between 90 and 100 days without resolution, it is time for your 10 day final demand letter. This letter should be extremely direct and let the customer know you have reached the end of your patience with them. It should also state very clearly the next contact they will receive will be from an outside third party. You must not initiate contact with them again as to posture yourself and your third party partner – this puts credibility for you and the third party at its highest. Upon expiration of the letter, the account should be sent to the agency for action.

No plan is full proof; however, the tighter your procedure is the better chances you will have to see your money again.

Ray Evans – Executive Recovery Manager