When accounts fall into collections they tend to follow a predictable pattern. Although every situation is unique and there are industry particulars, if you have worked in accounts receivable management long enough you will start to recognize some definite patterns. Here are three warning signs that an account is headed for collections:
- Communication Falls Off: Both sudden and gradual decreases in communication or responsiveness from the client are surefire indicators that they are distancing themselves (of course, sometimes a major life change has happened, and you can give them the benefit of the doubt...but that’s your call). It’s far more likely that an out-of-sight, out-of-mind approach is taking place.
- Bizarre Excuses: The adult version of “the dog ate my homework” might sound something like this: “our system has been down” (for weeks!), “our mail delivery is unreliable, and we haven’t received any notices” (yeah right!), or even “I wasn’t aware we had an established contract” (uh huh). While bizarre excuses like this might actually work on a rare occasion, that’s generally for something like missing a day of work...not refusing to uphold your half of a contract.
- Contingent Promises: Have you ever had a client say something like “I just landed a big account and as soon as I get paid, you will get paid.” Situations like these are highly indicative of cash flow problems at your client’s business. Along with that comes the likelihood that you are not the only one in line to get paid...which does not bode well for your own bottom line.
If you recognize any of these signs in some of your current client relationships, be forewarned...a trip to collections might be on the horizon. Now let’s discuss ways you can potentially avoid this path in the future (saving you time and money).
- Have you heard of pre-collections? Early intervention sends a timely message to a consumer, and often a slight nudge is all that is necessary to resolve past-due accounts prior to placing them in full collection. We work with our clients to customize programs for those accounts, resulting in greatly reduced collection fees.
- Make sure your contracts are squared away. The legal aspect of a business relationship is rarely overlooked, but it’s not always adequately addressed, either. There are certain contractual clauses that can protect your business in the event that a client neglects to pay. You can read more about tangible steps to take that will improve accounts receivable management here.
- Send a Final Notice. This might be the most important step to codify in your company procedures to cut down on the number of accounts sent to collections. An effective final notice can make the difference for a customer agreeing to pay, resolving the balance due, and potentially keeping remaining as a client. On the other hand, a poorly handled final notice can cause you to be completely ignored. See here for some examples.
Hopefully, you don’t recognize too many of the signs above in your client relationships, and hopefully you’ve already addressed some of the potential solutions above. Of course, even if every precaution is taken, some accounts will still become delinquent. For those cases, it can be helpful to have an established partnership with a reputable debt collection agency. Contact us today to see how National Service Bureau can help your business!