Collecting Receivables
Good receivable management is usually about understanding customer behavior. It is also about enforcement of the credit policy.
Customer Types:
- Your best customers take advantage of discounts and pay early.
- Good customers pay within terms.
- Fair customers pay inside and outside of terms and sometimes require a telephone call.
- Marginal accounts, which make up 5% of the customer base, require 50% of your time, create 100% of your frustration and account for most of the outside collection costs.
If the allocation of time and resources spent on delinquent accounts exceeds 50%, then your credit department is in a crisis mode all the time. You are jumping from one fire into the next and just trying to prevent the next crisis.
Here is a simple chart to figure out where you are and where you want to be:
You want to spend as must time as possible in quadrant II; handling tasks that are important but not urgent. Most departments are stuck in #1. How can you tell? Simple, there are never enough hours in the day and you are completely spent at 5:00PM. FYI, people in quadrant IV often spend their time surfing the net and answering emails.
- Understand your customer base through statistical analysis.
- Get rid of customers and projects that always create crisis and delinquent accounts. Give them to your competition.
- Assign important ongoing tasks to good staff. Provide support, deadlines and expectations. Schedule follow-up meetings.
- Identify garbage work and get it out of your department.
- Outsource collection work. It never ever pays to keep the process internal.
Levy – von Beck has the same collection goals as our clients. Getting to principal isn’t enough. Reducing collection expenses by recovery of interest and fees helps to validate our services and to validate your choice of using our firm. Our bi-annual reports show clients the net cost of recovery (Fees charges minus interest and fees recovered).
Do you know what you are really paying for outside collection services?
Remember that all credit managers are, at some point, consumers of legal services. Think outside the box and let us help determine if you are really getting good value and returning maximum profits to the shareholders.
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