Accounts Receivable Management - Why it takes an Expert
At a recent seminar I asked the question “How does it make you feel when a customer does not pay you?” A woman in the front row did not hesitate “Bad!”. It was actually a very complete answer. Unrecovered A/R is frustrating, draining, and not what you went into business to do – overall, bad.
Accounts Receivable are accounts which are not immediately paid. They can be future promises for payments or future write-offs. Whether it goes one way or the other can make or break a business.Traditionally, accounts receivable are managed something like this. Services or goods are provided. The customer is billed. If the bill is not paid, the customer is contacted by letter, call or re-billing. If still not paid, the tone intensifies. Finally, the bill is either written off or sent to an outside collection agency. The agency is able to collect some portion.
I often use the picture of hanging fruit to illustrate the progression of A/R recovery. Internal or early stage efforts clean the lower hanging fruit. In order to reach the next layers, you have to step to the next rung. The higher you climb, the more expertise and resources are needed. A client recently commented “the low hanging fruit recovered by my collection agency, is high hanging fruit to us.” One reason collection agencies prosper, is that they glean the low hanging fruit left behind and they are experts in gathering from the higher rungs.
Does A/R expertise exist and if it does, what is it? You may have wondered, how your collection agency get results when your attempts have failed. The answer is expertise. Even when faced with increasing regulatory pressure, restrictions on activities and liability from consumer law suits, collection agencies continue.
A/R expertise consists of:
- Segmentation – accounts are grouped according to identified likelihood of payment.
- Strategy – a strategy is designed for each segment. Strategies involve method and timing or work effort.
- Work effort – the strategy is implemented, results monitored and adjustments made if needed.
Consider the impact if you could apply A/R expertise to your internal and early stage efforts. Instead of waiting until all other efforts have failed, what if you managed your A/R from the start. The cash impact of well managed A/R can be significant – significant enough to pay for the needed resources and more – growth, hiring, marketing, research – you get the idea.
Turn the “bad” into “good” results. Manage your A/R in the best possible way to achieve the best recovery rate possible – from start to finish.