Managing Your Receivables for Top Performance

There are certain key performance indicators (KPI’s) that any business can implement to significantly increase its odds of not only surviving but help it to thrive.

Each segment of your business, including your credit department, should have its own sub-set of KPI’s to ensure your cash flow is optimized while managing costs. 

Here are the compelling reasons to carefully manage your accounts receivable:

• ·         If one maintains a systematic method of managing accounts between 30-60 days past due, you should see an 85% reduction in accounts aging past 60 days.
• ·         After 60 days, the probability of collecting your account is 80%, at 90+ days, it slides to just 70%
• ·         If allowed to age past 90 to 180 days, the chances of a full recovery are now 54%!

So what steps can you take to maintain control of your receivables?

         Know Your Customer - Paretto’s Principle holds true in most companies that 80% of your revenue is generated by 20% of your customers. Segment your customers by assigning codes. For example:

A.      Best customers, great margins, pays within terms, few service issues.

B.      Bread & butter clients, consistent orders, no price haggling, pays no later than 45 days,

C.      Complains about everything, many warranty issues, stretch payables for a long time, takes unauthorized discounts. Customer you wish you hadn’t met.

D.      Dead. These are customers purchased from you once and you haven’t heard from in a long time.

    Start the Collection Process Early - Sometimes all it takes is an automated email reminder, or a copy of a statement, that can get the job done. This is the first step in helping to classify/segment your customer base. When the early reminder doesn’t elicit a response, these are the customers that may require personal contact. Always make contact with these customers no longer than the mid-point of your first past due period. For example if your terms are 30 days- make sure you personally contact your customer at day 45. Studies indicate that personal contact at this stage of delinquency can reduce that number of customers reaching 60 days, by as much as 85%.

     Follow-Up – If your receivable still remains unpaid by this point, and there’s no diligent follow-up, then you have effectively given your blessing to be paid sometime after 60 days. Talk to the right person at your customer’s office who can sign a cheque. Get a firm commitment as to a date when the funds will be received. Confirm your understanding of the arrangement while you have your customer on the phone and again via email right after you hang up.

     Pull The Trigger – if by 120 days you still have not received payment- it’s time to take further action. This is the point where most customer-service oriented creditors blink as this step can be uncomfortable. If an individual runs out of money – you can still collect from them when they get back to work. 

                                    If a company runs out of money – it’s dead.

At this point we recommend a Ten Day Demand letter be sent advising the customer that unless fall payment is received by a specific date, their account will be placed for collection.

To make the decision to take action easier for creditors, the Third-Party Collection industry has developed a Ten Day Demand letter which creditors can use free of charge. It works like this:

·         Letter sent to customer on collection agency letterhead giving the debtor ten business days to remit full payment directly to the creditor.

·         If the debtor pays the bill within the ten day period, there is no charge to the creditor.

·         Should the debtor pay only a portion of the bill or nothing at all, then their account rolls into the regular collection process of the collection agency. Funds paid after this date will be subject to your pre-determined fee agreement.

All creditors, who use this service, like the certainty that they made the right decision at the right time. If the customer fails to remit – then it was the right time to hire a third party.

To learn more about our Ten Day Demand System, click here and fill out the form. 

Credit Literacy for a Young Person You Love

Generally our focus is on commercial debt and commercial transactions; however in this issue we will be discussing credit and financial literacy for high school students.  Take this home and have a discussion with your own children or someone you care about.

Some of our community involvement activities centre on personal credit issues. We provide a credit seminar to local high schools. It is part of the Career and Life Management program (CALM).  There is only a paragraph dedicated to credit and its use in the textbooks. As older consumers will attest, there is much more to be learned about the subject and it would be great if it didn’t have to be learned the hard way!

Here is the seminar outline that we use:

Credit is defined as: confidence in a purchasers ability and intention to pay, displayed by entrusting the buyer with goods or services without immediate payment.

Examples of credit: cell phones, gym memberships, library cards, student loans, Visa, MasterCard, store credit cards, utilities.

How do you get credit? 1) Capacity – Cash Flow (job)

                                       2) Character – Attitude

                                       3) Credit worthiness – Payment habits

                                       4) Conditions – Layoffs (bad economy)

Cost of Credit:

Examples of common credit issues: roommates, cellphone bill, gym membership

How long do I have to fix the problem? Generally 90 days to pay all arrears.

Collection Agencies – What happens if I don’t pay?

Bankruptcy – A Credit “Mulligan”

Budgeting - Importance

Q & A

It has been our experience that gym memberships, cell phones, and roommates are the most common reasons a young person will have credit troubles. Have this conversation with the young person and explain to them the responsible use of credit and how it will either help or hinder them in the not too distant future. A great credit rating opens up many possibilities whereas a poor one can hold you back for a long time

Priority Credit Recovery Inc. and Account Adjustment Bureau save US Producer with Innovative Solution.

PCR received a collection account from one of their Multi-National Canadian clients for over $100K against a USA Producer.  PCR engaged their USA subsidiary Account Adjustment Bureau. The documentation consisted only of invoices, a name and number.

An investigation was conducted; the debtor was contacted who admitted to receiving and selling the product. There was no dispute. They cited poor financial planning and cost overruns as the cause for non-payment. They could not pay and legal action appeared to be the only recourse. It was clear to PCR/AAB the debtor needed to restructure, increase profitability by lowering production costs, plus they needed better equipment.

A solution was proposed by PCR/AAB and accepted by the client and debtor. PCR/ AAB drafted a loan agreement, incorporated Personal and Corporate Guarantees, interest and a fee structure for the service. The debtor converted the payable to a term loan, which enabled them restructure, obtain capital financing, increase profitability and expand their market share. The client converted the receivable to an investment asset and continues to do business on a COD basis.

The supplier and producer continue to have a mutually profitable relationship. USA/Canadian International Relations improved with this innovative solution proposed by highly trained professionals who went outside the box.  This example is proof that PCR/AAB professionals look beyond the obvious when collecting a debt.