Collecting overdue accounts receivable is more an art than a science. Half the problem can be alleviated with proper procedures up-front, such as customer screening, written proposals, and credit checks.
Once an account becomes delinquent, you have some decisions to make. Some customers should be handled differently from others. A long-time client who suddenly stops paying may have a problem which can be worked out while maintaining your relationship. Conversely, a new client who turns delinquent may require action, which could jeopardize your relationship.
Collection steps should include demand letters and follow-up telephone calls. Document the results of each step. This will prove beneficial in the event legal action becomes necessary.
If your collection efforts fail, you have the option of writing off the account or using a collection agency or an attorney. There are pros and cons to each option.
Collection Agency. A collection agency should have a good reputation. The agency should provide you with references, have adequate bond protection, and maintain a separate trust account for each of its clients. An appropriate fee could range from twenty to twenty-five percent of the funds collected. A lower fee may indicate the agency is only interested in collecting easier accounts.
Your Attorney. Larger accounts may be turned over to your attorney. An experienced attorney may be able to collect even the most difficult accounts or be able to collect them more quickly. Many firms work on a contingent fee basis but may require a down payment for out-of-pocket costs.
Some accounts you simply will not collect. Know when to write them off and move on. You may even get some tax benefit from the write-off.
© Copyright 2000 Raymond S. Kulzick. All rights reserved. 000705.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.