Collecting on delinquent accounts is a challenge. For home furnishings suppliers, it’s important to build and maintain positive relationships with retail partners – and collecting on an account is only going to serve to strain that relationship. Unfortunately, there will reach a point with some of your accounts where collecting is the only option.
In this article, we’d like to talk about the pieces of information you’ll want to gather before turning an account over to collections. Having the right information available – and as much of it as possible – will only make it more likely that you’ll recover something from a delinquent account.
You should have a system in place for determining which of your past due accounts need to be turned over to collections. For instance, the collection process may be triggered if an account reaches 120 days past due with a balance over a given amount. Whatever your threshold may be, it’s important to be consistent across your accounts.
Once an account has reached the point where collecting is the only option, the following basic pieces of information should be assembled –
- The invoices that are past due, including due dates and balances
- Contact information for the business; specifically, details on ownership and how to reach the accounting department. This information should be required in the form of a New Account Credit Application, and should be filled out and signed by the owner, or at minimum and officer of the company.
- The credit application or any relevant contracts or other agreements between your company and the debtor
This is the information that will be required by a collection agency when they start to work on an account. Filling in as many gaps as possible with complete information will make it easier to track down payments and collect at least some of what you are owed.
Commercial credit accounts tend to fall into patterns of payment. Some accounts will pay as soon as possible each and every time, to make sure they take advantage of whatever discounts are available. Other accounts will always be lagging behind, either because they are struggling to make ends meet or they simply resist making payments until they are encouraged to do so.
Be sure to evaluate any account that may be headed to collections to see what kind of payment pattern emerges. If it is an account that is always lagging behind, it’s possible that they simply let it go longer than normal and will be able to make a payment if contacted directly. Conversely, an account that always pays early and suddenly has stopped paying may be facing some kind of crisis.
Dig a Little Deeper
Beyond the basic pieces of information we listed above, there are other important points to check on before you consider collections. As a starting point, is the business still open? If you aren’t receiving payments, and no one is taking your calls, it’s possible that the company has gone out of business entirely. Or, they may be under new ownership, which could make it difficult to collect what you are owed in some cases.
You may need to do some legwork in order to get to the bottom of some of your delinquent accounts. Doing that work in a timely manner is important, however, as the difference between recovering some of your money and writing off the entire account could depend on how quickly you take action.
Sometimes, you won’t be able to get any money out of an account, even if you gather up all the information you can find. While that will be a painful write-off, you can still learn something from the experience that may help in the future. Go back and look at the information you collected from the company during the credit application process. Why were they approved for credit, and were there any warning signs that you missed (one way to reduce this is by getting credit reports on this type of account regularly)? By using accounts that go bad as a learning experience, you can refine your lending process and do better in the future.
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