Accounting & Bookkeeping

Collection Strategies for Overdue Receivables

Written by Analytix Editorial Team | October 3, 2013

The best way for business owners to manage debts which are overdue is to develop and implement a cohesive debt collection policy. Accounts receivable are about monies owed to a business after services or products have been delivered, therefore collecting receivables can be challenging.

Although laws exist that place parameters around debt collection and the interest due on these payments, it is more efficient and far less expensive for start-ups or small businesses to follow collection strategies rather than settle the matters in court.

Understanding overdue receivables

The longer that these receivables age, the more difficult collecting the debt becomes. Certain industries, such as medical or government accounts, are prone to longer receivable collection periods due to regulatory issues or insurance processing timeframes. With regard to medical accounts, multiple parties may be involved in contributing various portions to the final payment for the service, so it is beneficial to check details of the insurance agreement for all the parties involved, including the insurance company, patient, patient’s employer, and/or caregiver.

One suggestion for promoting timely payments is to incentivize clients or customers to pay on time by offering discounts for advance payments, early payments, etc. Receivables collections can be a time consuming process. However, business owners can improve efficiency and reduce costs associated with collections by implementing automated reminders and alerts to clients, thereby reducing the amount of manpower required in the collections process.

Collecting overdue amounts

Communicating with the client is paramount to the collections process. Sometimes, overdue payments from clients are simply an oversight on their part. As a first step, reach out to clients via phone or email to remind them of the overdue payment. Provide a definite time period in which payment for the receivable needs to be settled. Keep the tone of the communication professional yet firm.

If your emails and other communications have gone unanswered or ignored, you can send your clients a formal pre-collection notice. These notices are sent by collection agencies. The client then deals with the agency staff. Modifications to the notice could include the option of responding to you and discussing the debt directly. However, if the clients do not respond, it is wise to move on.

Once you have determined that your client is non- responsive, despite the pre-collection notice, you should begin a more formal collections process. Business owners can carry out their own collection as a first-party collector or you may hand the responsibility over to a collections agency. Either way, remember to research or review any laws applicable to debt collection, as failure to comply with these laws can result in a client suing your business.

Written by

Analytix Editorial Team
Analytix Editorial Team

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