My area of expertise is in billing and collections. Here are some handy tips you can implement right away to help reduce your outstanding A/R and get paid sooner.
If your customer/patient statements have “aging buckets” on the bottom of the page (30, 60, 90, 120+), you should redesign the form to eliminate them. What you’re doing is conveying an expectation that their balance will continue to age each month and you’ve even made a provision for that eventuality right on your statement. It also trains customers who buy from you often to only pay off the oldest balances as they reach the bucket farthest to the right, but to never bring their accounts current. It’s better to show the total balance and if possible, include a message that states “your account is now 60 days past-due” for example or provide some other threat if you intend to send them to collections, shut off service or whatever other consequence is appropriate for your business. Colored paper for past-due invoices is also an attention grabber and stands out among the pile of white paper invoices on your customers’ desks, bringing it more attention.
Make sure you have a specific due date on each invoice. Many invoices have the date the invoice was generated, but don’t state when they are actually due (again, it’s all about conveying expectations). Additionally, it’s better to put a specific due date, rather than “Terms 30 days”. Also, make sure you have your phone # on every customer contact. Don’t make it difficult for your customers to call you if they have a question, a dispute, etc. If your # isn’t on the correspondence, it may be several days before they get around to looking it up to call you to resolve their balance. Time is money!
When a customer says they can’t pay in full, rather than asking “how much can you pay?” ask “How much are you short?” The latter implies that you expect that they can pay most of the balance rather than that you are asking for a small crumb to hold you off for now. And, when establishing a payment plan, make sure they are agreeing to more than just the one installment and that there’s an understanding of when the remainder will be paid and what the consequences are if they don’t adhere to the agreement.
After 90 days, accounts receivable depreciate at 15% per month (per US Dept of Commerce Study), so it’s costly to keep trying to collect yourself after 90 days. Seek a collection agency when promises are broken or when your contacts are ignored or a balance reaches 90 days or as soon as a debtor tells you they refuse to pay. Make sure the agency is licensed to collect in the state where your debtor is located and make sure they are bonded and insured so if they go out of business, they don’t take your money with them. Also ask how often you can get status updates and in what format. Do they provide online access to reports or only mail/fax paper copies (and how often or only upon request?)
Let’s bust some myths about collections:
There is no law that requires you to send a specific number of bills, nor are you required to send any kind of a warning letter before sending a debtor to collections.
Just because someone is making partial payments does not mean you can’t send them to collections if you feel it’s taking too long for the balance to be paid.
Small Claims court requires you to file in the county where the debtor is located, not where your business is located. Not only is this inconvenient for filing, but then you have to show up for court in that county as well (and pay filing fees and the court dates are well into the future). If the debtor doesn’t show or if you win the case, you get a court judgment – 70% of all judgments are never collected so you’ve wasted time and money and still haven’t been paid. It’s not the most effective solution for collecting money.
Name: Transworld Systems Inc.
Contact: Karen Cooper, MBA
Business: Collection Systems
Advice Topics: Billing and collections tips to help reduce your outstanding A/R and get paid sooner.
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