As a business leader or decision maker, inevitably there will come a time when you will likely review and make changes to your internal A/R policies and procedures. That might mean starting some kind of outsourcing project, changing the age of the accounts when you involve your collection agency, adding new layers of letters and/or phone calls, or any combination of the above.
It’s important to maximize your internal resources when the time comes to make changes. If the ultimate goal (and it normally is) is to lower your DSO (days sales outstanding), then logically you want your internal credit and collections staff focused on the accounts that are quickest and easiest to collect. Historically that means accounts aged less then 60 days (in a net 30 scenario). In addition, you will want the expertise and knowledge of your staff focused on those few large customers you have that make up the bulk of your annual sales.
This approach will leave the more aged accounts (those generally more difficult to recover) available for outsourcing to your agency. Ideally, your agency has the capability to customize a program not only for working with your new policies, but a clean-up program to assist in rapidly reducing your DSO, as well. A cohesive plan of attack for the portfolio clean-up may include services such as:
- Database searches (looking for habitual debtors)
- Complimentary demand letters (as a last-ditch effort to collect accounts in-house); and
- A soft approach program for mediating less-aged accounts without risking the relationship between you and your slightly past-due customers
The best agencies also typically offer a free aging analysis to assist you in identifying potential problem accounts (habitual debtors) which will help you make informed decisions about which accounts should be placed for collections and which should be worked internally.
Including your collection agency in the planning phase of major policy changes can mitigate potential headaches, as they likely have programs and services to help reduce your staff’s internal workload throughout the process. In addition, they may offer services, like those mentioned above, that you might not have known were even available! Be sure to reach out to your sales representative and discuss your plans for change. You’ll be glad you did.
Have you made changes to your internal A/R policy recently?
What advice would you give other businesses thinking about making a change? Have you adopted or utilized any of the suggestions we provided in this post? Share your insight with us by using the comment field below!