FREE online courses on How to Manage Cash Flow - Chapter 4 - Collection
Practices
As we previously
discussed, the receipts cycle requires a diligent collection process. We need to
balance this need for quick cash collections with the needs of our customers.
For example, customers who are important to our business should be treated
carefully as opposed to customers who mean little or nothing to our future.
Therefore, collection efforts must be customer specific in order to be
effective.
Specific collection
techniques include letters, telephone calls, faxes, emails, and legal action.
Two examples of collection letters are illustrated below:
Example 13 - Collection
Letter after 90 days
Our records indicate
that a balance of $ 4,650.30 is over 90 days past due. We have sent monthly
statements and reminders several times, but we have yet to receive payment or
any explanation as to why payment should not be made.
Please review this
matter immediately. I will call you in the next five days to arrange payment.
Example 14 - Final
Collection Letter (Certified Mail)
Despite numerous
requests and phone calls, we have not received payment for the attached invoices
totaling $ 4,650.30.
Unless we receive full
payment on or before September 15th, we will take whatever action is necessary
to collect the balance.
The overall collection
process should be pro-active and preventative. For example, wherever possible
try to collect payment immediately as products or services are delivered. This
eliminates the need for invoicing and follow-up collection. Require deposits
from customers that have a history of late payments. Use credit applications to
weed-out bad customers. Include a clause in the credit application that states
all collection costs are reimbursed by the customer on delinquent accounts.
Finally, if you receive payment in the form of a bad check, retain the check as
evidence that you have a valid claim.
