How Collectible are Your Aging Accounts?

Collectability FactorsThere are many factors to look at when considering how collectible a past due account is, however the age of the account is the number one indicator.

Let us consider past-due accounts averaging up to four months old versus past due accounts at 1 year old. The former are approximately 75 – 80% recoverable.

For you it may be 90% or 70%. The exact percentage really doesn’t matter. What does matter is the relationship between the two classes of accounts.

When you begin to look at the recovery rate on the older accounts, however, they are MUCH less recoverable than your newer accounts.  In part, because you simply don’t have enough time to work on them with same vigor as newer accounts with a higher pay out chance and it’s wiser for you to spend your time and effort into growing your business rather than chasing a customer who won’t pay their bill.

But, if you were to continue to work those older accounts, you would probably only recover about 20% anyway.  A bad debt is not like fine wine or cheese; it doesn’t improve with age and a piece of paper in your drawer is not money in your bank.  Your aging receivables rapidly become less recoverable with time and reduces as much as 10% a month thereafter.

Hanging on to your accounts one year instead of four to six months is like playing the lotto. You might possibly win a huge jackpot. The odds are you will lose consistently.

What are the other factors at play when considering collectability of aging accounts?

  1. CAN YOUR CUSTOMER BE LOCATED? Keeping your account information accurate and current is vital to cash flow success because if you cannot locate them, you will not be able to collect from them without investigative and skip tracing tools.
  1. IS YOUR CUSTOMER COMMUNICATING? If there is no level of back and forth communication between you and your customer, there is no chance of negotiating and recovery. In this situation, your only choice is to write-off this account or assign it to third party for collection.
  1. IS THERE DEBT ACKNOWLEDGMENT? If your customer agrees that they owe you money, negotiation can begin and you will want to determine when you can expect your payment.  If however, your customer acknowledges the debt but shows no signs of wanting to pay the obligation (i.e., setting up a payment plan schedule) then you have to consider other options.
  1. CAN YOUR CUSTOMER PAY? If your customer has a willingness to pay, but not the means to do so, you have a few options:

♦ Ask for full payment or a large portion with the balance in postdated checks over a short time;
♦ Accept a payment plan when it’s the only option;
♦ Know other sources of money your customer can use to get out of debt when he claims to have little or no ability to find funds to pay his bills.

√ Sell a major asset
√ Borrow $ from friends/family
√ Cash in a tax deferred account
√ Get a loan with a co-signer


Please visit Dynamic Legal Recovery’s website or call us at 877-777-7564 for your complimentary evaluation.

 

 

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