A Vital Factor for Effective Collection
“Early Detection,” when utilized by a credit department, becomes the single most important contributing factor towards collecting a delinquent account. “Early Detection” is nothing more than identifying a potential write-off “early” and then taking placement action. If throughout the course of a year a company has ten accounts that are refusing to pay, these ten are written off. If these same ten accounts were subjected to “Early Detection,” write-offs are reduced from ten accounts down to two accounts.
The first action by a creditor should be initiated at ten days Past Due Terms (PDT), as the National Statistics show (See “National Past Due Averages of Domestic Trade Receivables Result Summary”) that at eight to nine days past terms (PDT) 80% of your receivables should be in hand. By ninety-one days past due terms, there should be no more than 1.6% of the receivables in the past due category. Of those in the ninety-one days past due category, all of them by now should have been placed for collection.
Between thirty and sixty days past due, a potential problem account should have been handled at least three times. With each contact the tone should be one of “finality” meaning for example, “I expect you to direct payment in full to our office today.” Credit personnel should “set up” the problem account with a response from the debtor, which either will be fulfilled or broken. Never accept a debtor response such as, “I will send as much money as I can.” There is nothing definitive about this statement and, further, the debtor is in control – not the creditor.
It may sound simplistic but a client of Williams & Williams had a very effective way of placing an account on a timely basis. Given that the balance was at least thirty days past due, their golden placement rule was “after two lies it is time to place the debtor for collection.”
The repercussions and ripple effect of how placement timing can impact the credit grantor, we would recommend reading the following subject matter found within our website: