I once had a boss who taught me that the best time to mow the lawn was “just before you need it.” He said, “If you look out the window and say the grass needs to be mowed, it’s too late.” The same is true in the world of accounts receivable management. The best time to place the beads for collection is “just before you need it”!
Think about it, most of the time when we decide that it is time to act it is because we called and the phone was disconnected, or we sent a late statement or notice and could not be delivered. Of course, sometimes a business closes a few days after placing the order, but that’s really rare.
Some time ago I had the opportunity to say a few words at a sales meeting, so I proposed the “Johnnie Cochran method of identifying bad accounts.” For those of you who don’t remember Johnnie Cochran during the OJ Simpson trial they coined the phrase, “If the glove doesn’t fit, you must acquit.” Well, I suggested these two phrases: if the phone is disconnected, it will not be picked up; And if you have to skip the trace, it is too late to locate it. As you can imagine, that got quite a few laughs. But the fact is, if the bill gets to that point, forget about it.
Now, I’m not saying that accounts with disconnected phone numbers are never charged. If we never collected accounts that had to be traced, we would not be worth our salt as a collection agency. What I’m saying is that companies that use that as a method of determining 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 you need to follow an accounts receivable schedule in order to maintain positive cash flow. The exact timeline depends mainly on your terms. Suppose for a moment your terms are the normal “net-30”, the following could be a timeline you would use:
Day -1 You ship your product or service your customer and invoice it. They now have thirty days to pay, according to the agreed terms.
Day 30 If no payment has been received, call customer and send due notice.
Day 45 Another advance notice and a collection call. They need to know that you are watching their aging and that they are on the wrong side.
Day 60 One last call and a written request for payment. This request should inform you that all accounts older than 60 days are subject to outside collection activities.
You should pause for a second here. Some of you will say that this account is not 60 days past due, only thirty. I have to disagree. The account is expired at the time you ship or provide service. It’s a troubled account until the day it is paid, and in many cases, until the day the check clears at your bank.
Day-75-80 A ten-day demand letter should be sent to inform your client that unless you hear from them in ten days, this account will be charged. The key here is that when the deadline passes, you need to take action! Like I said before, when you make that call and hear the “death tones” (the number you are trying to call has been disconnected …) it is too late. Write it down to experiment. Someone once said, “Experience is what you get, when you don’t get what you wanted.” Making that call is like looking out the window and seeing that your lawn is 12 inches tall!
Remember:
If the phone is disconnected, it is not picked up.
If you have to skip the trace, it is too late to locate it.
You can quote me on that!