Burt and Associates

Public Shaming and Complains in Debt Collection It seems that public outrage has reached a fever pitch in recent years. While there has always been an undercurrent of this from the beginning of civilization, it has never been easier to shame people in public than it is today.

When you are in business you need to expect certain things like product arriving late, employees out sick, checks getting lost in the mail, slow sales and cash flow struggles. But what happens when your customer(s) stop paying? Burt and Associates can help you with your collection needs and identify potential collections risks. This kind of thing is not uncommon and comes with the territory; help is out there. As a business owner, you need to recognize the signs of potential high risk customers. Your customer’s late or lack of payment has a direct impact on your cash flow and ability to operate your business smoothly. When you think about it, your company: • No longer has the product. • Does not have the cash in hand. • Cash flow is down and inventory replenishment may not occur or occur timely. • Additional expenses for collection recovery. • May need to discount receivable to collect something. • Your ability to satisfy your businesses debt may become more difficult. The Beginning Signs of a Potential Problem Customer In the beginning you did not have any problems with your customers paying on their accounts. As time passes, problems start to appear in a couple of different ways, either an increase in return checks or late payments. These two signs can turn into bigger trouble coming. So, if you are experiencing a customer that has several uncashable checks because the funds are not available, you need to keep a closer eye on them. You need to look at the frequency of the occurrences, the invoice amounts and the customer’s total receivable balance. Do not hesitate to reach out to the customer for an explanation. At this point in time communication may resolve the problem but you can never be too safe. Another thing to watch is if a customer is starting to pay their account later and later. An occasional late payment is nothing to worry about, but if your customer is starting to pay late every month you need to find out what is going on. Sometimes this can be as simple as rearranging the due date because they had a change in their cash flow. A Growing Accounts Receivable Balance If the customer is still continually bouncing checks, paying late or even not paying on their account at all, your accounts receivable (A/R) balance continues to grow. At what point should you take action with your growing A/R balances and what action should you take? Your first consideration is suspending the customer’s account. If they have a large balance due, you do not want to continue to ship them product that you might not get paid for. You need to make sure to protect your inventory and reduce your potential loss from either bad debt or discounting the receivable. Another available option may include requesting your customer provide your company with a guarantee for the receivable balance. If you go the route of a guarantee, make sure some type of property secures it. Do not accept a personal guarantee because you have nothing backing it. No Communication The biggest flag for uncollectible receivables is no communication. When your customer stops talking to you, take action immediately! It does not matter if the communication is verbal or written; if the customer is not responding it is a problem. If you lose total communication with your customer, it becomes harder to collect the outstanding balance. When this happens, you should start the collections process and put the customer account on hold. Contact your collections agency and your attorney for your next steps. Establish Collection Policies For your business to reduce the risks and losses, you need to establish collection policies. These policies should contain limits for unpaid A/R balances, procedures for contacting the customer and the frequency before escalating to collections and an attorney. Some examples may include: • Invoice balances over 60 days - your accountant calls customer to follow up on payment. • Invoice balance over 90 days - mail copies of the customer statement and invoices to customer. • Invoice balance over 120 days - notice to send the customer to collections if balance is not received within 15 days. • Any invoice over $50,000 and unpaid after 45 days receives a phone call for a follow up on payment time frame. • Put all documentation of the contact with the customer in the customer’s file. • Place a customer’s account on hold when the account is more than 120 days past due and the balance is over $100,000. The customer is to receive a notification in the mail of the hold. Excuses for Non-Payment When you are dealing with customers, you will hear just about every excuse as to why they cannot pay their account. The customers may have some very harsh words. Remember, it’s not you it’s the situation. Some of the more common collections excuses include: 1. This debt is not mine. 2. I do not have enough information to verify the debt. 3. The company paid that debt. 4. I never got the right to dispute notice. 5. That’s not the right balance for collections. Remember, if you are having trouble with collecting your A/R Burt and Associates can help!

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