This means they must follow state and federal laws in the collection of a debt. One of the laws they must follow is the Fair Debt Collection Practices Act or FDCPA.

When you are attempting to collect your own accounts, but have yet to turn them over, you are considered a first-party collector. Depending on your state, you may have certain laws to follow.

If you or the Collection Agency break the law in the collection of a debt, the debtor may sue. Make sure you understand the laws of your state when you begin to collect your accounts. Your Attorney should be able to research this for you.

Much of the nastiness of collection can be removed by having a clear policy and procedure set in your credit department. Take the time to do that, and you should easily have 98% of your clients paying on time. But if you don’t set clear policy, you’ll soon regret it.

• The person who is “selling” the product, should NOT be the person “collecting” the debt. It’s too much of a conflict.
• If you’re a very small business and do not have separate personnel, you may just want to use a collection agency if all other attempts within that first 120 days fail.

With MoneyQuest, you get the agency impact, plus the Attorney and the Credit Bureau early, all without the high cost. The point is to draw a line in the sand – at the latest, 120 days, as they say with an agency. Again, due to MoneyQuest’s diplomacy and low cost, and not being an agency, you can use the service earlier. This lets you collect more of your money yet still save on clerical help.

In all cases we suggest you set a policy and stick with it no matter who it is, only making exceptions for very important or unusual customers. Remember, when MoneyQuest acts on your behalf we really “are” you…but we add the impact you need. If that doesn’t do it, then the Attorney follow up takes place. The net cost is only 5-7% if we are used properly.

Receivables exist because most industries, except the retail business, offer their customers payment terms other than cash on delivery. A company that refuses to offer terms, that is demands cash on sales, will lose sales and customers because the customers will purchase their goods from competitors who offer such terms. The customer prefers to receive the goods now and to pay for them later in order to conserve their cash.

Terms are quoted in a variety of forms such as the following:

• Net 10 days from invoice
• Net 30 days from shipment
• 1% 10 days, Net 45 days from invoice

The first term requires payment in 10 days from the invoice date. The second term requires payment within 30 days from the shipment date. And, the third set of terms offer a bonus for early payment. It offers 1% discount from the invoice amount, if it is paid within 10 days of the invoice date. Beyond the 10 days, up to 45 days, the customer pays 100% of the invoice.

Receivables are a use of funds. They represent dollars the company does not have available to reinvest in inventory, pay its obligations, etc. If the company had no receivables, it would collect cash upon the sale of inventory and have the cash available for the business.

The existence of receivables indicates that the company, instead of collecting cash, invested cash into receivables which, in effect, are loans to customers. Trade receivables take the form of invoices rather than promissory notes. Your legal rights and collection techniques are different for trade receivables than for a promissory note.

If a company gives 30 day period terms, it should collect a receivable in 30 days. Anyone can sell; not everyone, however, can collect. One method of measuring the quality of receivables is to compare the actual collection period to the stated payment terms. The average actual collection period is known as Days Receivable.

To determine receivable quality, the company’s terms of payment are compared to the actual collection period. The collection period and the terms should be about equal. Because accounts receivable is a use of your company’s cash, close attention should be paid to the days receivables.

When you find days receivable greater than your sales terms, the first step in analyzing your problem is to age your accounts receivable by multiples of your terms. For example if you give NET 30, this means your invoice is to be paid within 30 days. The logical aging time periods may be 0-30 days, 31-60 days, 61-90 days, over 90 days.

Under each of the above categories, total the amount due from each of your clients. For example:

In the example, the amounts might represent one or more than one invoice. If you are using a computer based A/R program, it should have an aging report built in.

From the above schedule, you have invested $4,758 in accounts receivable. $2,150 of which is past the agreed upon date for payment to be made. This is cash that is due you and you could use to purchase raw material, pay employees, or pay your loan payment to the bank.

You are now able to identify that first you do not want to sell anymore items to Client 4 (except perhaps on a COD basis). You must watch clients 3 and 6 closely to ensure payment. Client 2 may also require attention, but it is possible this is a large client like a state of federal government, that has a bill payment cycle that for what ever reason seems to always be behind.

Aging of account receivable identifies your problem customers, and also allows you to manage your credit policies based upon industry standards. If your accounts receivable are abnormally long, you know you must work harder at collecting for items you have already sold. If on the other hand, your accounts receivable are abnormally short, you may be able to increase sales by easing your credit policies.

The basic message here is simple. The longer an account goes unpaid, the more difficult it becomes to collect. However, there are two different types of accounts that historically take longer to collect. Accounts that are owed by the state or federal government usually take 60-90 days to pay. Medical accounts will vary depending on the type of insurance the patient has. You may want to wait or call to check the status of the account before deciding on further activity. It is important to note that unless it is a worker’s compensation claim, most all other insurance companies have an agreement between the client and the insurance company, NOT the patient and the doctor. Client/patients should be making payment arrangements on their medical/dental accounts whether insurance pays or not.

That being said, the biggest problem with any business and their collection department is that in many small businesses, there is no collection department. They are relying on the accounts receivable clerk to also act as the collector and s/he is already busy getting invoices out and keeping up with customer payments. There has never been a set procedure regarding credit policy. Many businesses “shoot from the hip” and just hope people pay them on time.

No account, with the exception of the government or certain medical claims should be hanging around uncollected for more than 90 days. By 120 days very serious measures should have been taken. After the original billing goes out, a notice should be sent once the due date has past. Notices should be sent out at 30/60/90 days. During this time, phone calls should be attempted to reach the party. If no arrangements are made and there has been no response, then there are a few options to take:

1. Send out a Pre-collect notice with options (MaxCollect is a hybrid taking this to a higher level. We give you the power of the pre-collection notices but with the bureau and the attorney included)
2. Turn it over to a collection agency
3. Take it to court yourself