A good credit department reduces bad debt and past due accounts by getting proactive about debts collected, preferably before the due date.
It is important to begin communication with your customers early and detect any potential problems with their order. Bad debts can arise from simple disputes and convenient memory loses. It is wise to also include your credit terms and conditions agreed to by the customer along with a copy of the invoice.
Should an invoice become past due, it is especially important to set the tone early in the relationship. It is necessary to bring the problem firmly, but professionally to their attention. It is possible that the customer is testing you as a new vendor to see how sensitive you are to delays in payments so he can extend his cash flow to its maximum at your expense.
To reduce your DSO and improve your cash flow, move quickly on past-due receivables. The longer receivables go uncollected, the less likely they are to ever be collected, either partially or in full. Day 45 is not the time to make initial contact with a client about a payment that was due on day 30.
Your collection efforts should begin the first day that payment is late. You can start with a gentle reminder that payment is now past due which is usually sufficient to prompt most clients to pay right away. Firmer communications may become necessary if payment is not forthcoming within a reasonable amount of time set by your credit policy (we recommend 15 days after receipt of goods or services and again), including dunning letters informing clients that legal action may commence if payment isn’t received by a certain deadline (we recommend at 30-45 days after receipt of goods).
Remember, you will not see the effect of any long-term improvement in your organization without a consistently applied process.
Please visit Dynamic Legal Recovery’s website or call us at 877-777-7564 for your complimentary evaluation.