Timing is everything in the world of commercial debt collection. In just a blink of an eye, people who have been your best customers for years can go from having excellent credit to nearly bankrupt. And the only way to prevent your business from suffering the consequences is to act early, and to make sure there is no confusion about your intentions to get paid.

The common tendency for many part-time debt collectors is to give their clients the benefit of the doubt and hope that things turn around for them. However, more often than not, this is simply giving them enough rope to hang themselves. It is almost always a better idea to pursue debt collection much more seriously in the early stages of delinquency.

Let’s take a look at two hypothetical case studies that further illustrate the importance of being on top of debt collection as early as possible.

The Contractor is Falling Behind

We have seen many instances when the person who was struggling to repay a debt has a long track record with a particular supplier. One of the best examples of this is a contractor that has been working with a local home improvement store for years.

When the contractor discovers an unforeseen foundation issue right in the middle of a flip, the healthy profit that he projected to make suddenly evaporates. Then when the finished house takes six months longer to sell than he anticipated, he falls behind on many of his accounts with local subcontractors.

The contractor believes that despite taking a severe loss on that particular project, he can persevere and make a healthy profit on his next five flips and eventually repays all of his creditors, with interest. Unfortunately, this is an incredibly optimistic “best case” scenario.

The more likely outcome is that the contractor struggles through the next few years and eventually sticks about half of his creditors when he files for bankruptcy. The half who actually get paid are almost always going to be the ones who pushed for repayment sooner and more seriously.

The Struggling Store Owner

Sticking with the same story, let’s move to the woman who owns the local hardware store that originally extended credit to the contractor. Once he fell behind, she made every attempt to work with him, but he also used their long-standing relationship to buy some time.

As she was struggling with the fact that her Accounts Receivable weren’t coming in, a brand new Lowes Home Improvement Warehouse opened in her community and her business took a tremendous hit. She still has some business from loyal customers like our hardworking contractor, but most of that is on credit and her overall revenue has plummeted.

With a lot less money coming in, the hardware store owner naturally falls behind on many of her obligations to her vendors and utility companies. She is now on a crash course that almost always ends in bankruptcy, and the creditors who do get paid will be the ones who see this coming and act quickly.

As you can see, outstanding debt can have a tremendous impact on the cash flow of multiple businesses over the course of a number of years. When some creditors get paid and some don’t, the ones who do are going to be the ones who act first and utilize the best collection practices.

In order to ensure that your business isn’t left holding the bag when one of your clients takes a wrong turn, you absolutely must have systems in place to ensure that you are able to act swiftly the very minute that you suspect a problem with anyone you extend credit to. Timing can make all the difference.