How your Accounts Receivables lose value over time

Your Accounts Receivables and how the value of those receivables diminishes over time.

Time is Money

 As you can see by the above illustration provided by Inside ARM, the value of your receivables can reduce substantially over a short period of time. This graph shows that you will only collect 20 to 60 percent of your receivables once they are 90 to 120 days old. Now I believe this graph (depending on your business and types of customers) is a true estimate to the value of your receivables over time.

This months blog will address the processes you can incorporate to reduce your losses to bad debt.

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 consistant follow up. We can assist you in this area if your current software does not have collection capabilities.

Set up policies that include letter timing and when telephone calls should be made.

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.

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. 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. Start making telephone calls on all balances over $300.00 no longer then 5 days after your first letter.

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. Also see Augusts Blog on Credit Policies.

Decrease in Value as Receivables Age

Age

Value

< 30 days

90-95%

30-59 days

70-85%

60-89 days

60-75%

90-120 days

15-50%

 

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