At What Point Should You Escalate Overdue Accounts Receivable?

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Almost every business out there sells on credit. But not all customers who buy on credit meet their debt payment terms. That’s why, despite having attractive sales figures, many businesses suffer from sluggish cash flow.

It’s not always the mistake of the customers, though. In many cases, it’s because businesses have failed to establish strong account receivables policies. As a result, they sell so many goods, with no money flowing in. It’s more like they’re giving the products out for free, seeing them risking their survival.

When it comes to account receivables policy, there are no two ways about it. You have to make it as sturdy as possible. You have to communicate every crucial information to your customers before they take any goods or services on credit. Doing this ensures that they’re aware of what would compel your business to escalate overdue accounts.

Failure to clearly outline accounts receivables guidelines is a precursor to bad debts. Also, your business might not know the exact time when to escalate the account receivables. That’d result in either too late or too early escalation.

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When is the best time to escalate account receivables?

If you’ve been asking yourself this or related questions, read further to know when best to escalate account receivables.

Understand Your Customers

Even though there are some benchmarks that every business should put in place regarding how they handle their accounts receivables, it’s essential to get to know every customer well so that you can uniquely handle each. Doing so doesn’t mean, however, that you define these tailor-made terms at the very beginning for the client. You should only consider such customized debt payment terms once the debt has become overdue and the customer has failed to pay. That means you should have universal terms for all your customers and consider customized terms only when a customer fails to meet their debt obligation.

Doing so will help you to define terms that are friendly to your customers and motivate them to pay.

Remind Your Customer About The Debt and Terms

When issuing debt to a customer, you provide them with all the details relating to the debt and the consequences of failing to pay.

However, remind them about the debt and these consequences when the debt is almost due. Reminding your debtor is likely to encourage them to prioritize the debt and make prompt payment.

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Don’t Escalate Too Soon or Too Late.

You’re most likely going to experience overdue accounts in the course of your business. Overdue accounts may impact negatively your business, particularly your cash flow. If not addressed early enough, your business may not be in a position to clear its debts, a scenario that might push you out of business.

It’s, therefore, understandable that you may feel compelled to escalate overdue accounts as soon as possible. However, be careful not to do so too early as that might end up annoying your customers.

As a business, the best thing to do during the early periods is to send professional reminders to the debtors. Make your language as friendly as possible.

On the other hand, too late reminders are also not advisable. Statistics show that escalating your accounts after 90 days might not yield good results.

Therefore, try as much as you can to escalate your accounts receivables between 60 and 90 days. Before referring the debts to a debt collection agency, send your debtor a final reminder. Seize the opportunity to inform them that you’d resort to the prescribed advanced steps to recovering overdue debts if they don’t pay within a specific number of days.

Maintain Positive Relationship

Steps to recovering overdue debts don’t mean sacrificing your customers. Throughout the debt recovery process, maintain a positive relationship with your debtors so that you can have a long term relationship with them.

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Communicate with them professionally, letting them know that every action taken is in line with your accounts receivables policy that they agreed to when they were accepting your products and services on credit.

As you escalate an account receivable, ensure you furnish your debt collector with all the essential information about the respective debtor so that a tailored approach may be employed. The bottom line is that you must hire a professional debt collector if you’re to retain your customers through the debt collection process.

Conclusion

There is no better time to escalate overdue accounts than after 60 days and before it hits 90 days. Also, if a debtor doesn’t clear an account for more than four months, that debtor might not pay after all. Consider writing the debt off.

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