Bad Debt Strategies

If you extend credit to your customers, which is required for almost all businesses, a certain amount of bad debt will result.  Resolving this bad debt efficiently and quickly, while not disrupting the possibility of future business from the customer takes tact and experience.

Following are a few strategies that will help with this situation:

30 days Past Due

  • Analyze the customer history.  Fully understand the relationship to date.
  • Contact the client, as soon as the bill becomes past due.  Do not leave a voice mail message.  The first call should always be administrative in nature to understand if there are any issues with billing or the service provided, i.e. missing or lost invoice; waiting for approval…  During this call, ask directly when you should expect to receive the past due payment.
  • Send a letter to the client with the agreed upon new terms.

60 days Past DueIf the issue is not resolved, follow-up will be required.

  • Contact the client, as soon as the newly established commitment date lapses.  Do not leave a voice mail message.  This call should be considered the initial Collections Call.  If not discussed in the first call, try to understand the reason for the bad debt, i.e. cash flow problems; default due to being out of business, bankruptcy; or other serious problem.  During this call, ask directly when you should expect to receive the past due payment.
  • Discontinue service until the outstanding debt is satisfied.
  • Send a letter to the client with the agreed upon new terms.

90 days Past Due – If the issue is not resolved, follow-up will be required.

  • Prior to this call the Collections Manager should speak with the responsible Executive to discuss options that include legal actions.
  • Contact the client, as soon as the second established commitment date lapses.  Do not leave a voice mail message.  Try to understand what new situation occurred that justifies the missing of this second day.  Advise the client of the actions you will be taking to try and collect the debt.
  • Send a letter to the client with the agreed upon resolutions discussed.

Every customer interaction should be documented and maintained in the client file, as part of their history.

Bad debt should be tracked via a Scorecard that includes dollars delinquent, for each of the following time periods – 30, 60, 90, 120, 180 days.

Prior to a bad debt situation –

  • Document your collections policy, to ensure the customer experience is consistent.
  • Make sure your credit application and policies are compliant based on state guidelines.  Engaging a Collections Attorney to review your application and approach is a worthwhile expense.
  • Audit your client files to make sure that you have a current credit application, signed by an individual with the authority to enter agreements; as well as the contact information for your customer’s Accounts Payable contact.

Please let me know your experiences.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.
© Copyright 2012 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!

Regis Quirin

Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

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