In the face of increased uncertainty, it may be useful to review what we know for sure and what the practical implications are for credit and collection managers. In difficult times, accounts are more perishable and collection recovery of past-due receivables decreases.
Many companies, during economic downturns, extend the time they will allow an account receivable to age before they engage in formal collection efforts. Failure to engage in timely collection efforts on accounts, some of which are higher-than-average risk to begin with, can have a severely negative impact on a company’s cash flow and bottom line. The longer an account languishes on the books, the more it costs to keep it there and the less likely it is to be collected at all.
Here are a few tips to help your organization maintain a healthy cash flow in these difficult times:
1. Monitor troubled industries. Regularly review financial magazines, newspapers, and financial websites to help you stay abreast of industry developments.
2. Watch for “red flags” that can signal potential collection problems. Have the customer’s paying habits changed?
3. Form a partnership with a third-party collector. A good collection agency can improve your bottom line while preserving your relationships with your customers.