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Accounts receivable: Keep your money and your customers

Lanny V. Daise Published on 01 August 2011
Past Due

Times with dealing with customers have changed since I was a young farmer (50+ years ago). It used to be a handshake was as good as gold.

I still believe that when dealing with ag businesses, most of your customers are good as their word. Farmers and ranchers are just a more honest clientele than some of my other clients’ debtors from other industries.

Ag businesses tend to not have the delinquency issues of other industries I represent. However, I am seeing more and more ag businesses coming to me for advice and the need to work with professional collection agencies and attorneys to help them recover their accounts receivable.

I can’t specifically say why the times are changing; it could be banks do not have the flexibility they used to have when it comes to loaning money on accounts receivable.

A general manager for a large co-op told me recently that his bank would no longer loan him money toward his operating loan on accounts receivable older than 30 days.

Another client of mine told me, “Society as a whole is just not as responsible as they used to be, and people feel they can just get away with not paying their bills.”

Whatever the reason for the increase in the need for utilizing professional collectors to pay the debts owed to businesses, it is on the rise. I’d like to address, in this article, how you can help prevent accounts from becoming delinquent, and if some do, what you can do to increase your chances of getting full recovery.

A delinquent account is defined as one that goes beyond the terms of the agreement. What are your terms? Net on delivery, net-15, or net-30? Have you ever had a customer run 30 to 60 days delinquent?

If an account goes that long without making arrangements, do you question why? Does it raise any “red flags,” or are you too busy to notice?

Are you sending an invoice or bill of lading with the loads and ensuring the receiver signs them? Do you get a credit application if your customer wants terms?

Do you check their credit application or bank references? Do you have a systematic billing system?

Granting credit/terms is not a right – it’s a privilege. As the credit grantor, you have every right to ask for a credit application.

And you should be verifying that information as soon as possible. Nowadays with the Internet and a few phone calls, it can be done with minimal effort.

Don’t you have to fill out a credit application if you want to open up a new account at your local implement dealer or bank?

Any more if you change doctors or dentists, you have to leave a photocopy of your driver’s license as well as fill out forms promising to adhere to their terms of payment.

Why shouldn’t you do the same? Are you in business to give money away, or allow someone to “steal” from you?

I look at customers who are trying to get out of paying their debts without making attempts or arrangements as just like someone who is trying to steal from you.

The only difference is you probably even delivered your product to them right to their door. Now you are most likely out the cost of the delivery of the goods, too.

These questions just asked; credit applications, systematic billing system, phone contacts, checking references, etc., are not just rhetorical questions, but processes you (as the credit grantor) need to be engaged in to help avoid bad debt write-offs and delinquent accounts.

If you are not, you are opening the door to very poor cash-flow and the possibility of losing a lot of money.

So let’s say you are following these (or some) procedures and you still end up with delinquent accounts. What should you do next? Age is the biggest deteriorating factor in the collectability of an account.

If you allow an account to go 30 to 60 days beyond terms without stepping up your internal efforts or turning the account over to a professional or agency, you greatly reduce your ability to recover your money.

First, a little recent history about collection agencies and attorneys:

• Last year, $2.97 trillion was turned over to the collection industry.

• 17.1 percent was collected.

• When you figure that most collection agencies or attorneys charge a 33 to 50 percent fee, the creditor is lucky to recover 10 cents on every dollar.

• Most debts sent to collection agencies and attorneys are old because the creditor doesn’t want to have to give up those high fees. That usually well exceeds their profit margin.

• Most creditors try to work the accounts internally themselves, trying to recover the accounts in-house so they won’t have to give up such high fees.

Working accounts in-house also increases internal expenses as well as taking productive time and efforts away from doing what the creditor does best (their profession).

So, most importantly, you don’t want the accounts to age. Engaging in the background reference checks, having the systematic billing (and follow-through) practices and turning the accounts over to a professional soon (no later than 60 to 90 days beyond terms), is essential to good cash-flow and avoiding write-offs.

Still don’t want to have to give up those high fees? May I suggest you look for a fixed-fee collection agency, where you can set up a service that you can afford to help you manage your delinquent accounts so you can afford to turn them over at that 30-day, 60-day or 90-day delinquent mark.

I strongly feel if you want to solve your delinquency issues, having an account management partner that allows you the freedom (financially as well as physically) to enter accounts on a timely basis will not only reduce your accounts receivable and increase your cash-flow, but also will allow you to have a better chance of retaining your customers.

Retaining your customers? Yes, if you can get them to pay without having them exposed to harsh hard-core collection tactics, you have the opportunity to retain them and possibly having them become better customers in the long run.

I’m further suggesting you not go just for cheap, but find a partner who you can afford to work with that will get results.

You may find some out there who will write a few letters (that doesn’t cost much), but if they don’t make phone calls and escalate the pressure the longer the debtor refuses to comply, you will have further wasted your money and continued to age the accounts.

The partner you look for needs to have the ability to put “teeth” into the statements and phone conversations they initiate.

They need to have the ability to follow through on the promises they make; the ability to make payment arrangements and take credit card payments or ACH transfers over the phone; and finally, notify the national credit bureaus and litigate when warranted.

Earlier I stated last year 17.1 percent was recovered nationally by the collection industry; there are companies (mostly fixed-fee) that usually more than triple that percentage because they can get after the debtors much earlier, while the accounts are more highly collectable.

A fixed-fee agency or an arrangement with a partner who you can afford to turn the accounts over to earlier, and who has the ability “to sink their teeth” into the effort, will go a long way towards solving your accounts receivable issues and eliminating write-offs.  FG

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Lanny V. Daise
Tek Collect

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