Practice pointers to ensure collection of your accounts receivable

This article, written by Jim LaMontagne, was originally published by seacoastonline.com and can be found here.


Inflation is at its highest level in decades.  The Federal Reserve has just raised interest rates.  Businesses continue to suffer from disruptions in supply chains and the lack of staff and inventory.  Consumers prices continue to rise and many people are still navigating through unprecedented problems left in COVID’s wake.  All of that makes for difficult and tenuous operations for many businesses.  Several months ago, in this space, I suggested a few good practices that could save your business from peril in uncertain times.  That article was written from the debtor’s point of view.  This article looks at those tenuous business operations from a creditor’s point of view. Here, I offer several business practices that a creditor may employ to ensure collection of its accounts receivable so that it does not wind up with a large uncollectable claim or the largest unsecured claim in a bankruptcy case, both of which could spell doom for the creditor company.

Keeping your accounts receivable current or within 60 days is critical to a business’ success.  Whether you read Dun & Bradstreet, the Commercial Collection Agency Association of the Commercial Law League of America or some other financial medium, the message is the same:  when collecting debt, time is not your friend.  Studies show that collection of accounts within the first 60 days have a collection rate of more than 90%, while balances that remain outstanding past 90 days have collection rates that drop to 50-60% and after 120 days, collection rates drop to 20-30%.  Accordingly, a creditor needs effective strategies to ensure timely and effective collection of its accounts receivable.  Those strategies may include:

Clear And Understandable Invoices Delivered To The Correct Person:  Invoices should include, among other things, an invoice date, contact information (name, address, phone number and email address) for both the creditor and customer, a unique invoice number or another identifier, payment terms and deadlines, an itemized list of services with a unit price, quantity and total price for each line item and a clear and obvious total invoice amount due.  It is also important to send your invoices to the correct person at your customer’s company.  Sending your invoice to your customer contact doesn’t guarantee that your invoice will find its way to the accounting team, and an invoice delayed in reaching accounting gets paid later. Your customer contact is often not your accounting contact, so ask your customers with whom you should submit invoices.

Simplify The Payment Process:  Invoices should indicate which payment methods your company accepts.  Telephonic or on-line payments, and how to make such payments, should be offered to customers.  In the case of electronic invoices, a clickable link that allows a client to pay via credit card or PayPal should be included.

Proactive Accounting:  Have defined steps to follow once a customer has been invoiced, and an equally clear understanding of the processes involved in following up on that invoice.  Follow-up on unpaid invoices with emails or with telephone calls for those more pressing debts.  Set an internal policy to pursue debts more than 14 days late with telephone calls, which customers often find harder to ignore than emails.

Communication:  If a customer’s payment patterns change, communicate with that customer to determine whether increased collections efforts are needed, if a credit hold or C.O.D. terms are warranted or if upfront payments or deposits are necessary moving forward.

Give Options To Your Customers And Speak To The Right Person:  Finally, provide your customers with options to pay their invoices.  Depending on the circumstances, ask if they can pay a portion now, and the rest later or whether a one-time payment could be made if the invoice was discounted.  Ask whether they could use their credit card to pay you. Regardless, if you can’t get a payment, get a payment commitment.  Additionally, and while seemingly obvious, it’s important to speak with the person who’ll actually be paying the invoice.  Again, your customer contact may not be the correct person to speak with when asking that a past due invoice be paid.

While, unfortunately, none of these strategies can guaranty payment of your invoices, they should certainly help to ensure that you don’t end up as that creditor with a large uncollectible claim when your customer ceases operations or files bankruptcy.