Dean Kaplan is President of The Kaplan Group. He writes about business debt collection, contract negotiations and provides financial advice.
As we work our way out of a global pandemic, we can see the tremendous impact it’s had in virtually all aspects of business, including accounts receivable. In 2020 alone, bad debt carried by U.S. businesses grew 26%, with late payments affecting 50% of the total value of business-to-business sales involving credit. Ultimately, 8% of all U.S. business invoices were written off as uncollectible.
If your company is caught in the aftermath of this trend, unpaid customer debt may now be your financial Achilles’ heel. Here are six signs you may benefit from hiring a professional collections firm.
1. Unpaid Receivables Have Risen Sharply
Many growing companies operated for years with no significant collection issues, but the pandemic (and related macroeconomic pressures) may have changed that. If you’ve been keeping a constant eye on metrics such as days sales outstanding, average days delinquent, bad debt to sales ratio and total percentage of risky accounts, you may see that debt collection is hurting cash flow (and your bottom line).
2. Major Clients Are Stonewalling You
Detailed records of client actions in your customer relationship management or billing system will confirm when clients don’t intend to pay unless you escalate the matter. Red flags include:
• No response to past-due notices sent via email, USPS or direct message.
• Refusal to speak with you or your staff about outstanding amounts.
• Promises to pay that never materialize.
• Excuses that don’t lead to solutions.
• Stubbornly disputing the debt, even after you’ve provided ample documentation.
These are signs that you’re stuck—and need to get unstuck fast. Before long, these clients’ other vendors will likely be chasing them for payment. Creditors who escalate first, following proven practices for collecting business debt, are the likeliest to collect.
3. You Want Legal Protection For Your Business
It can be difficult to keep up with state and federal laws and regulations that govern business collections. If you make a misstep and your company is sued by your debtors, that could cost you even more in the long run. Turning over thorny collections cases to a professional can help you stay in full compliance with applicable law.
4. You Need A Fast Solution
Business collection experts follow best practices that give them a distinct edge in resolving back debt. Their knowledge comes from years of experience in engaging debtors and negotiating workable solutions. This puts time on your side, which can make a critical difference in the final outcome.
5. You Want To Conserve Business Resources
You and your financial team have plenty of big-picture challenges to deal with on a daily basis. When a growing share of your time goes to collections activities, stress rises—especially if your in-house staff is not fully trained in debt collection techniques. Hiring a collections professional can save time and money by getting directly at the problem while freeing you to focus on running your business.
6. You’re Concerned Your Debtor May Try To Hurt Your Company’s Reputation
In a time when negative reviews and social media rants can do serious damage to a company’s good name, customer relations has become an even more delicate art. Payment disputes can cause anger on both sides, which can motivate a debtor to attack your reputation. It’s unfair and uncalled for, but it happens all too often—which is why having a collections pro in your corner can protect more than just your bottom line.
When To Consider Keeping A Delinquent Account In-House
While seeing one or more of these indicators might prompt you to send an account to a qualified collections agency, there will be plenty of times you decide against it. The best approach is to consider each case on its own, engaging a collections pro when you determine that the overall risks warrant it. On the other hand, you may continue to work with clients who carry past-due balances if:
• The invoice is less than 90 days past due.
• The client has presented a logical, documented explanation for late payment.
• The client is communicating openly with you, rather than dodging or denying the issue.
• They have presented a possible solution or indicated their willingness to work with you.
• You believe they have the ability to pay the amount you are owed.
As with any business decision, this is a judgment call based on a combination of facts and trust. No matter what, you should always ask for documentation that supports your client’s position. But based on these positive indicators, you may decide that this customer’s long-term value to your organization outweighs any temporary struggles they may be having. Appropriate follow-up by your billing team may be all that’s needed to resolve the matter in a way that works for everyone.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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