Principles of Commercial Debt Collection

Business, especially small business that rely heavily on short term cash flow, know how important it is to get your customers to pay their bills – on time. If your customers do not pay you on time then it is easy to become a slow pay yourself.

When collecting receivables, or for that matter, any debt from a customer there are principles to debt collection that you should follow:

• your risk - don't let the receivables from one customer get too high. A good rule of thumb is that one customer should never exceed 10% of total receivables. If you ever get to 40% from one customer you are putting the entire company at risk – regardless of how financially strong your customer is (remember GM and AIG).
• Salesforce may know your customer best but let them sell- leave collections to the professionals. Either have your accounts receivable group collect the debt or do it yourself.
• receivable is a business relationship - don't let it get personal. Keep the collection process and all of your communications professional.
• procedures. Have policies in place for 30, 60, 90 and above 90 day receivables and follow them -don't escalate you collections efforts right away. Do not delay the collection process – it will only get worse.
• the debt becomes uncollectable use a collection agency. Their fees may seem high – but at some point (usually 120 days) you have expended all efforts and outside help is required.

in mind that many small businesses will use your receivable as their cash flow and they will only pay when they need your services or products again. If this continues to happen make sure you get deposits up front or even full payment if you are concerned that this customer is a chronic bad pay. Better to lose the customer than the money.

stay on top of the receivable- no matter how long it takes. Some businesses are surprised that they can actually get paid years after the due date and along after they ceased doing business with the customer.

Posted in: Credit Card