I talk to business owners all the time they tell me.
“If I could pay off my 90+ or 120+ balance, I wouldn’t have a problem.”
“My clients at 30 and 60 days are fine, I am concerned about the more than 90 overdue accounts.”
Let me tell you a secret. Your balance of 120 is not the problem. It is a symptom of an ineffective accounts receivable system. The issue is how do you handle 30-day accounts. What you collect in the 30-day bucket never makes it to the 60-day bucket and what you collect in the 60-day bucket never makes it to the 90-day bucket and what you collect in the 90-day bucket never makes it to the 120-day bucket .
Let’s take a look at an example.
Example of seniority for Example Company Inc.
Current…..30 Days…..60 Days…..90 Days…..120 Days
$100,000…$70,000….$50,000…..$40,000…..$90,000
This is a U-shaped aging report.
Four to six months after implementing an effective accounts receivable management process, your aging report would look like this. What you want is a decreasing tendency to age.
Current…..30 Days…..60 Days…..90 Days…..120 Days
$100,000…$50,000…..$20,000…..$10,000…..$5,000
By using an effective and consistent accounts receivable management process, your outstanding balance percentages should decrease from 30 to 120 days. Most businesses have a U-shaped aging report. Would your business benefit from faster collections on outstanding balances?
So how do you get from where you are today to a declining aging trend?
- Billing – Bill quickly. Try paperless invoicing and you’ll save money on postage, ink, paper, and time (the biggest expense).
- Clearly indicate the terms (expiration date) and payment methods; check, credit card, electronic funds transfer (EFT).
- Customer service follow-up. Contact your customer 5-10 days before the payment due date with a customer service survey. There are many electronic options available. This is also a great way to promote additional offers, let your customers know what else is happening at your business, and highlight marketing and PR efforts.
There are 4 types of payers
Type I – Reliable
They will pay from the invoice or the first statement, sometimes even without it.
Type II – Distracted
We live in a busy world. They are busy and need a reminder.
Type III – Disrespectful
They may be in a cash flow crisis. They need a consequence to pay.
Type IV – Professional Debtor
They never intended to pay. They know all the collection laws and are just waiting for you to make a mistake. Don’t make a mistake or they will pounce. Hire a professional debt collector because they know all the laws and are trained to get money from professional debtors.
What to Do at 30 Days – Friendly Reminder Letter from 1st Party #1. The highlighted goal here is to open the lines of communication and help the customer resolve the balance.
What to do at 40 days – First Friendly Phone Call #1 – Reinforce Reminder Letter #1. Open the Lines of Communication.
What to Do at 50 Days – Part 1 Friendly Reminder Letter #2 – This is another attempt to open the lines of communication.
What to do at 60 days – First Friendly Phone Call #2 – Reinforce Reminder Letter #2. Open the Lines of Communication.
What to do at 70 days – Final Reminder Letter: This is the last chance letter to get Type II payers and some of the Type III payers. This letter says that if you do not respond in 10 days, your account will be referred to a third-party collection agency. Do what it says and refer to a third party if there is no response. If you don’t, you are violating the FDCPA.
What to do at 80 days: Have a third party submit Demand Letter #1. The cost here can vary, but there are services available that will make contacts with third parties for around $10 per account. One of the added benefits of third party contact is the 30 day dispute requirements. This is a great benefit to you because when the dispute period expires, this is a legally valid debt.
What to do at 90 days – Third Party Phone Call #1 – Reinforcement Demand Letter #1. Open the Lines of Communication.
What to do at 100 days: Third Party Demand Letter #2: Increase the language trying to generate a response to open the lines of communication.
What to do at 110 days – Third party phone call #2 – Reinforce demand letter #2. Open the Lines of Communication.
What to do at 120 days – Third Party Final Demand Letter – Last Chance to Get Type III Payers. The third-party 30-day dispute option has expired – it is now considered a legally valid debt.
What to do in more than 130 days – % of collections from third parties