I once had a boss who taught me that the best time to mow your lawn was “just before you need it.” He said, “If you look out the window and say the lawn needs to be mowed, it’s too late.” The same is true in the world of accounts receivable management. The best time to place accounts for collection is “just before you need them”!
Think about it, most of the time 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 late notice and it couldn’t be delivered. Of course, sometimes a company closes just a few days after placing the order, but that’s really rare.
Some time ago I was given the opportunity to say a few words at a sales meeting, so I proposed the “Johnnie Cochran Method for Identifying Bad Accounts.” For those of you who don’t remember, Johnnie Cochran coined the phrase during the OJ Simpson trial: “If the glove doesn’t fit you, you should get it.” Well, I suggested these two sentences: if the phone is offline, it will not be picked up; and if you have to skip the trace, it’s too late to place it. As you can imagine, that garnered quite a few laughs. But the fact is that if the account reaches that point, forget it.
Now I’m not saying that accounts with disconnected phone numbers are never charged. If we never collected accounts that had to be skipped, 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 schedule that they follow most of the time.
Many experts in the field agree that an accounts receivable schedule must be followed to maintain positive cash flow. The exact timeline depends mostly on your terms. Assume for a moment that your terms are the normal “net-30”, the following might be a timeline you would use:
Day -1 You ship your product or service your customer and invoice them. They now have thirty days to pay, according to the agreed terms.
Day-30 If payment has not been received, call the customer and send an overdue notice.
Day 45 Another past notice and a collection call. They need to know that you are watching them age and that they are on the wrong side.
Day-60 A final call and a request for payment in writing. This request should inform them that all accounts older than 60 days are subject to external collection activity.
I should pause for a second here. Some of you will say, this account is not 60 days past due, it is only thirty. I have to disagree. The account is past due at the time you ship or provide service. It’s a problem account until the day it’s paid and, in many cases, until the day the check clears your bank.
Day-75-80 A ten-day demand letter should be sent to inform your customer that unless you hear from him within ten days, this account will go into collections. The key here is that when the deadline passes, you must take action! Like I said before, by the time you make that call and get the “death tones” (the number you’re trying to call has been disconnected…) it’s too late. Write it to experience. 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 a foot tall!
Remember:
If the phone is offline, it is not picked up.
If you have to skip the trace, it’s too late to place it.
You can quote me on that!
