Helping You Navigate The Collections Landscape

October 1 is the start of a new fiscal year for a large number of organizations - particularly those with a high percentage of their work coming from government contracts. The US government’s fiscal year runs from 01 October to 30 September and therefore a lot of businesses run their accounting on a similar schedule. Otherwise, fiscal years will typically coincide with the calendar year (in which case it’s only three months away).

Whenever the “new year” approaches it’s a good time to take a mental snapshot of your accounts receivable and to set some “resolutions” for the next year. Here’s what a typical list of resolutions looks like at NSBI:

1. Stretch and exercise more.

2. Eat healthier! Obviously.

3. Close the loop on open-ended accounts receivable.

4. Call grandma.

Sound about right?! You’re on your own for numbers 1,2, and 4. #3 is where we have a little more expertise.

In that vein, here’s a two-step plan to make sure your aging accounts receivable get squared away going into the new fiscal year:

1. Review Your Financials: Back to basics time. The first step is to take stock of your financial information. In your financial records should be a section that summarizes Aging Accounts Receivable (A/R). Software like Quickbooks will break this data down into time buckets. For example:

• Current (accounts due that have yet to be invoiced)

• 1 to 30 Days (beyond the date of invoice)

• 31-60 Days (beyond the date of invoice)

• 61-90 Days (beyond the date of invoice)

• >90 Days (beyond the date of invoice)

2. Put in place a process for the different time buckets. For example:

• Deliver a final notice in the event that a late notice gets routinely ignored. For an in-depth discussion of the final notice and best practices around delivery, read here. A good time for a final notice is at 90 days past the expected date of payment.

• Set up late payment notification procedures internal to your company. A good time for this would be 1 and 30 days beyond the date payment was expected. Many companies pay on a T-45 day schedule which means the expected date of payment isn’t until 45 days after the invoice is sent. In such a case, late payment notifications would go out on days 46 and 75. You can set up your financial tracking “buckets” to match the expected payment schedule with your particular clientele. If possible, use automated software. For example, set up automatic internal email notifications that instruct personnel to take a particular follow-on action (such as sending a late notice) in the event payment hasn’t been received. Even better, automate the email itself with a workflow that triggers when a late-payment signal is received.

• If necessary, place the aging account with a trusted collections agency.