Create a fine tuned accounts receivables department.
This month’s blog will breakdown your accounts receivables department into easy steps that will organize, optimize and lower your losses to bad debt. By using the processes and procedures that we will lay out, you will be able to create your own set of policies that will streamline your billing and collections.
To begin, you need to set up your Financial Policies, Billing and Collection Policies and Credit Policies. If you have receivables, then you must create Financial Policies and Credit Policies. By creating Credit Policies and Financial Policies, you can pass on a majority of the cost of collections to your customers. They are the reason you are using a third party to collect the debt. They simply did not abide by their obligation to pay you. Each state has different laws and rules for collection fees that are added to accounts when placed for collections. I have found that if you include the following statement, there is no reason that the courts in any state will not grant you these addition costs as it is a legal and binding signed agreement.
The statement is:
In the event your account becomes past due and is referred to an outside collection agency or attorney, you will be responsible for the collection costs at the rate of 33% of the balance due, along with reasonable attorney fees and court costs incurred by this office.
It is important to include the exact amount you are going to add on. If you put reasonable collection costs or fees, it is up to the judge or referee to determine what is reasonable. By stating the exact percentage that you will be adding on and having the customer sign the agreement, you are creating a binding contract that will hold up in court.
We do not collect all of the collection fees, sometime we use it as a settlement tool to get your original balance collected quickly in one lump sum. This also increases your total recoveries in a shorter period of time. We do collect enough to reduce your out of pocket expenses by as much as 80%. Visit our Credit Policies page to view a scenario showing the reduced costs. Also you will find an example of policies that you can use to create your own set of Financial and Credit policies. In your credit policies, or on your registration forms, you need to add in an area that authorizes you and your business partners to contact their cellular telephone. Because of recent TCPA litigation, I highly recommend you set this up immediately, as more TCPA cases are being filed against creditors and third party collection agencies. Visit our blog on Get consent to contact your customer’s cellular phone.
Every business that offers credit or has self pay accounts needs to create policies that outline the processes used to deal with the past due accounts. These Collection Policies need to be reviewed and changed on a regular basis. You need to find out what works in keeping your past due accounts receivables at a minimum. You’re always going to have some accounts that do not pay and you are left with no option but to use a third party to recover your money. However, it is up to your staff to stay on top of these accounts and make sure they are contacted regularly to minimize this from happening.
Organizing Account Contact & Follow-up
Use your internal software or create a document or spreadsheet that will allow you to organize and schedule calls and promise payments for consistent follow up. We can assist you in this area if your current software does not have collection capabilities.
Make sure the staff makes collections a top priority and not the last thing that gets done.
Educate your staff on the importance of continued follow up and contact with your customers or patients. Most businesses put the collections on the back burner. Write the policies and procedures down as to incorporate them into your daily routines. If you don’t address this with all new hires, you will fall backwards in your collection efforts. If you aren’t calling on your past due accounts, or your staff feels uncomfortable making calls, we can customize an early stage recovery program for you to make sure you are minimizing the amount of bad debt you have to write off each year.
Set your time frames for letters, telephone calls and placement for collection.
Set up the first letter at X # of days (15 days after the 30 day past due notice), or whatever you and your staff feel comfortable with. Letters can be an effective way to keep your customers current. Visit our blog on Creating effective collection letters. Start making telephone calls on all balances over $300, 5 days after your first letter. By setting up your Credit Policies to add on collection fees, you will position yourself to be able to place the accounts earlier. Once an account is over 90 days past due, or you have lost contact with them, you should place that account for collections. Visit our blog on Timing is Everything.
By working with your customers in the beginning to avoid payment problems you will maintain a lasting professional relationship. When customers become delinquent on paying, they generally won’t use your services. This is a loss of additional revenues you would see if you were lax on your collection and credit policies. With the proper strategy and training, your staff can make sure everything runs smoothly and your revenues will be at their maximum.
Training your staff to deal with your customers professionally and working with them to solve problems and resolve disputes, will allow you to keep more customers and gain you additional referral business.
The second part of the policies is training your staff to understand them and to follow them as closely as possible. You’re always going to have special circumstances that will deviate from your policies, but by keeping consistent with a majority of everything you do, you will achieve success in every facet of your business.
For more information about PRP, download the PRP Information PDF.