Managing accounts receivable is one of the toughest aspects of business. Every business that extends credit to customers is going to run into trouble collecting from some of those customers at times. And sometimes, even businesses that don’t plan on extending credit find themselves in situations where customers end up owing them significant amounts.
For the companies that are really good at managing AR, it has almost become a perfect hybrid of art and science. In order to make sure that you are prepared for the inevitable situation where you find yourself attempting to collect from your customers, it can be a huge benefit to study and model what some of these companies are doing to achieve the best results.
After studying the practices of some of these model operations, we uncovered four of the most common policies that can lead to dramatic improvements in managing accounts receivable.
Do Your Due Diligence
The first step in improving the collection process is to ensure that you find yourself dealing with delinquent accounts as infrequently as possible. And the best way to do that is to be extremely particular about the customers you are willing to extend credit to.
Of course, that is easier said than done for many businesses that are struggling to pay the bills and desperate for any type of sales. But always keep the bigger picture in mind and make sure that the people you are extending credit to are eventually going to be able to pay you.
Pay particular attention to a customer’s credit score and track record with your business and set lofty standards for who you are willing to extend credit to.
Keep Detailed Records
Once you make the decision to extend credit to a customer, the next is to track every single detail related to the customer’s account. Knowledge is power when it comes to collections, and you want to have plenty of both when you are attempting to get paid.
Using a good CRM solution is the best way to make sure that absolutely no details about the customer slip through the cracks, but you also have to have a policy for recording those details and a plan to make sure that your team actually follows through.
Once an account falls into delinquent status, the time to start the collection process has arrived. One of the key tips that all of the great collections agents suggest is that you absolutely have to follow-up religiously with the debtor you are attempting to collect from.
Always be sure to call when you say you are going to call, send letters when you say you are going to send letters, and show up when you say you are going to show up. This will go a long way towards proving your own credibility, and demanding the same in return.
Know When to Ask for Help
The final key that separates great collection departments from everyone else is their ability to throw in the towel the minute they realize that they aren’t going to be successful. But this is something that is a whole lot easier said than done.
The second you lose faith that you are going to be able to collect payment from a debtor, you have already lost. That means it is time to call in the experts and focus your efforts on your own business.
As you can see, the AR departments that you are going to want to model your own business after pay attention to every aspect of collections from before the debt exists until it is either paid in full or written off the books. Applying that level of attention to your own business is sure to have a dramatic impact on your collections department.