Simply writing off past-due accounts is a common approach among several businesses. We see this as leaving money on the table.
The primary reason for not following up on receivables is that most businesses are short-staffed, and their staff have little or no time left after completing their primary job responsibilities. Therefore, after a few initial follow-ups, they let go of their debtors.
The cost of hiring a dedicated employee to recover bills usually does not make sense because his employment costs are often equal to the money he may recover. Then why even take this headache?
Hire a Collection Agency – Minimize Defaults
Your businesses should seriously consider hiring a collection agency. Here are the main reasons for not hiring a collection agency and sending unpaid accounts to them. Many companies avoid debt collectors due to the following reasons.
1. They are not sure which collection agency to hire. They fear a collection agency’s involvement may hurt the company’s reputation. This perception is incorrect because several collection agencies have an amicable, respectful, and diplomatic way to recover the debt without harming your company’s reputation. Always go for a collection agency that has nationwide coverage.
2. Costs associated with hiring a collection agency. There is a cost of hiring a collection agency, but those costs are minuscule compared to the returns you can get.
3. Extra time will be needed to work with a collection agency. Although true, you do not need more time than you already spend trying to collect your unpaid bills. Therefore, even though you may be short-staffed, you do not need more people to work with a collection agency.
4. Data security of your customers. This is a pronounced concern, what happens when you share your data with a collection agency? Will it be kept securely or not?
This is a very genuine concern. You must ask the collection agency if they have a SOC security certificate, is HIPAA compliant, and if they have vendors located outside the USA. These simple questions can address your data security concerns.
There are several other reasons. However, the number one reason businesses are so unsuccessful with their accounts receivable is that they are short-staffed. Sending accounts to a collection agency once your B2B or B2C accounts are over 60 days past due will result in phenomenal recovery results.
Need a collection agency that is secure, amicable and easy to work with: Contact us
Things you can do internally
It is important for the company to address AR to ensure financial stability. Here are steps that the company can take to address the challenges in recovering AR due to being short-staffed:
- Assess the Situation: Conduct an assessment to understand the scope of the issue. Determine how much is outstanding in AR and identify any trends, such as specific clients that are consistently late in paying.
- Prioritize Receivables: Prioritize recovering the AR based on factors such as the amount due and the age of the receivable. Focus on the larger and older receivables first.
- Communication with Clients: Reach out to clients to remind them of outstanding invoices. Sometimes a simple reminder can prompt a client to pay. Consider implementing automated reminders through email or phone.
- Consider Temporary Staff or Outsourcing: To address the issue of being short-staffed, the company could hire temporary staff or consider outsourcing the AR management to a third-party agency that specializes in collections.
- Review Payment Terms and Policies: The company should review its payment terms and policies. Shortening payment terms or implementing late fees might be necessary to encourage timely payments.
- Implement Efficient Systems: Use accounting software to automate some AR processes. This can include sending out invoices, reminders, and tracking payments. Automation can help in managing the AR efficiently, even with limited staff.
- Focus on Relationship Building: Building strong client relationships can sometimes help recover AR. A good relationship might make clients more likely to prioritize payments to your company.
- Offer Payment Plans: For clients struggling to pay their invoices in full, consider offering a payment plan that allows them to pay in installments.
- Seek Legal Advice: If receivables are overdue and the client is unresponsive, it may be worth consulting with a lawyer or legal team to explore options for legal recourse.
- Monitor and Report: Regularly monitor the status of AR and generate reports. Share these reports with key stakeholders within the company to ensure that everyone is aware of the status and can take necessary actions.
- Staff Training and Resources: Ensure that the staff members involved in AR management are well-trained and have the resources they need to perform their duties effectively.
By taking these steps, the company can work to mitigate the challenges faced due to being short-staffed and focus on recovering the accounts receivable effectively.