How to Successfully Collect Receivables
Without Alienating Customers
The Problem – In December 2008, leading credit industry publication Credit Today conducted a top business-to-business credit executive roundtable. Their findings1 clearly demonstrate the accounts receivable (A/R) problem business owners are facing:
• DSO (Days Sales Outstanding, a key measure of the health of accounts receivable) is rising dramatically; indicating payments are slowing as buyers are using their suppliers as their “bank of last resort.”
• Experian, a leader in data on small businesses, conducted a study which showed that receivables from small business have risen 50% in recent months.
• Credit reporting firm Cortera data shows that between May and October the percentage of A/R over 30 days rose from 8% to 19%.
Unfortunately, the economy is in what is expected to be a long-term contraction. Most business owners skate through the accounts receivable process in the best of times and have only a vague idea of how to effectively manage their cash flows when the tide shifts. Yet, economic conditions have forced the rules to change. Businesses with an effective accounts receivable process will survive, and those that don’t will fail.
Managing accounts receivable isn’t a core competency of most business owners, and funding for a dedicated A/R department isn’t always in the budget. Alienating once good-paying customers is also a concern. “Collection calls” can be emotionally draining and are often delegated to administrative, customer service or sales personnel who consider it a necessary evil that falls to the bottom of their “to-do” lists.
In the current economic environment treating accounts receivable as an afterthought won’t work. It is possible to keep DSO at a manageable level without risking desirable business relationships while at the same time positioning business operations to take advantage of sales and growth opportunities arising in both the short and long terms.
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