Imagine a company whose business is brisk, services and goods are coveted, and sales are at record levels. Yet the company’s tremendous success is not reflected in its bottom line. The culprit? Most likely the business has neglected a very valuable asset: accounts receivable. In business, sales are the engine powering the company; but accounts receivable, converted to cash in the bank, are the fuel that keeps the engine running. An effective collection strategy to ensure that accounts receivable are converted to payments is crucial to the growth and development of any company.
Every company should have a comprehensive collection policy to address delinquent accounts. Each aspect of the policy should be designed to demonstrate to the customer the priority that is attached to timely payments, and to identify accounts that may require additional attention before they become significant problems. Administration of these procedures should be universal to create consistency and avoid sentiment. The policy should establish a timeline for internal collection steps such as calls and emails/letters to the customer regarding the past due account. This allows for an internal effort to learn of the reasons for payment delay, establish a rapport with the customer and most importantly to establish a repayment arrangement. Phone calls should be followed by demand letters that include the amount and date that payment was due, the company’s expectation of payment and notice of possible consequences if nonpayment continues.
The internal collection policy should also address the point at which an account should be placed with a firm for collection. When should an account be placed for collection? The answer is “it depends on the circumstances.” In most cases, placement should occur after completion of the internal collection procedures. If the customer has not responded to the established series of calls and emails/letters set out in the internal collection policy, or the customer has failed to meet repayment requirements by the agreed dates, it is time to place the claim for collection. In other cases, the customer’s circumstances may dictate prompt placement of the claim for collection, even before completion of internal collection efforts, for example: when word is out that the customer is not paying other vendors, or is about to sell its assets, or considering a bankruptcy or receivership proceeding. A seasoned credit professional recognizes when their leg of the race for payment has been completed and it is time to turn the baton over to an experienced firm that possess the tools and know-how to cross the finish line.
It is crucial that delinquent accounts are placed while the customer is still a viable and collectable entity, as the correlation between timeliness of placement and eventual collectability is undeniable. The early bird gets the worm, the squeaky wheel gets the grease, or signing Giannis to the maximum extension was a good business decision for the Bucks [1st championship in 50 years!]. Pick your favorite cliché—they are all appropriate. And the fact remains that similarly positioned creditors are not treated equally. Those who go after payment promptly get paid first.
The decision of when to place a claim for collection depends on a myriad of factors that are business and customer-specific. What does not vary is the importance of having available to your organization an experienced law firm that possesses the training and sophistication to develop a strategy to pursue, collect, and transform outstanding receivables into payments, a results-focused law firm that focuses on your company’s bottom line—the cash, not the flash.
If you would like to discuss a comprehensive collection policy or a particular customer or set of receivables, please contact KMK Attorney Darrell R. Zall at (414) 962-5110 or firstname.lastname@example.org.