I once had a boss who taught me that the best time to mow the lawn was “just before it needs it”. He said, “if you look out the window and say the grass needs to be mowed, it’s too late.” The same goes for the management of accounts receivable. The best time to place accounts for collection is “right before it needs it”!
Think about it, most often when we decide it’s time to take action, it’s because we called and the phone was disconnected or we sent a statement or delayed message and it returned undeliverable. Granted, sometimes a company closes a few days after ordering, but it really is a rare occurrence.
A while back, I had the opportunity to say a few words at a sales meeting, so I suggested the “Johnnie Cochran method of identifying bad accounts”. For those of you who can’t remember Johnnie Cochran under O.J. The Simpson trial coined the phrase, “If the glove doesn’t fit, you need to be freaking out.” Well, I suggested these two sentences: If the phone is disconnected, it will not be assembled; and If you need to skip tracking it, it’s just too late to place it. As you can imagine, it got quite a lot of laughs. But the fact is that if the account is at that point, you have to forget it.
Now, I’m not saying accounts with disconnected phone numbers are never collected. If we never collected accounts that had to be tracked, we would not be worth our salt as a collection agency. What I am saying is that companies that use it as a method of deciding when to place get a much lower collection return than companies that have a timeline that they follow most of the time.
Many experts in the field agree that a receivable timeline must be followed to maintain a positive cash flow. The exact timeline depends mainly on your terms. Assume for a moment that your terms are the normal “net-30”, the following may be a timeline you want to use:
Day -1 You ship your product or service to your customer and bill it. They now have thirty days to pay according to your agreed terms.
Day 30 If no payment has been received, call the customer and send an advance notice.
Day-45 Another advance notice and a gathering call. They need to know that you are looking at your aging and that they are on the wrong side of it.
Day 60 A last call and a written request for payment. This requirement should inform them that all accounts over 60 days are subject to external fundraising activity.
I was going to pause for a moment here. Some of you will say that this account is not due 60 days, it is only thirty. I disagree. The account is due at the moment you send or deliver the service. It is a problem account until the day it is paid and in many cases until the day the check clears your bank.
Day-75-80 A ten-day demand letter should be sent telling your customer that unless you hear from them in ten days, this account will go to collection. The key here is that as the deadline goes, take action! As I said before, when you make this call and get the “tones of death” (the number you are trying to reach has been interrupted …….) it is too late. Write it down to experience. Someone once said, “Experience is what you get when you don’t get what you wanted.” Calling it is like looking out the window and seeing that your grass is a foot high!
If the phone is disconnected, it will not be collected.
If you have to skip it, it’s just too late to place it.
You can quote me on that!