Collection Time Line; Scheduling Collection Follow Ups

Consistent collection action can help ensure that the majority of customer accounts remain relatively current. A decision to develop a specific timeline for collection activities should ensure:

• Delinquent customers are contacted in a structured manner,
• There is regular follow up on past due accounts by collectors,
• The credit manager is notified once an account becomes seriously delinquent, or
• The credit manager is notified if the collector cannot make necessary and expected progress in clearing any past due balance.

This is one example of a collection timeline:
• 3 days past due: The first collection call by the collector.
• 10 days past due: A follow up call is made by collector to find out why payment has not been received.   The collector will follow up on any commitment for payment an email or a fax on any past due balance over $xxx.
• 10 days past due: The first dunning letter is mailed.
• 17 days past due: The third collection call should be made by the collector. Collector notifies the credit manager of the problem.
• 25 days past due: If payment is not received, refer the account to credit manager based on either (a) one or more broken commitments or (b) the customer's refusal to offer a reasonable payment commitment.  The second dunning notice mailed.
• 26 days past due: The first call is placed to the debtor company's senior finanacial manager.
• 30 days past due: Review the account with the credit manager for a possible credit hold.  Make a follow up call to senior management at the debtor company. 
• 35 days past due:  Third call to senior management is made, and the first customized collection letter is mailed.
• 40 days past due: Fourth collection call to the customer's senior manager is place. The second personalized dunning letter is sent. 
• 45 days past due: A written demand for payment is mailed to the debtor.
• 60 days past due: A formal written demand for immediate payment in full of the past due balance is sent with a specific deadline for action by the customer.
• 70 days past due: Account referred to a third party for collection or legal action.

Note:  Some creditors who would consider schedule to be too aggressive.   If this is the case, adjustments can quickly and easily be made.  For example, if the creditor usually allows a 30 day grace period after the account becomes past due before making the first collection call, the schedule described above would be too aggressive.

Expediting Payment:  Keep your customers' accounts payable department's fax numbers and email addresses on file. Whenever the customer requests documentation, it should be faxed rather than mailed. If a customer insists on receiving original documents rather than a faxed copy, require an explanation.  There is no good reason for a customer to require original documentation.  Therefore, the primary reason for doing so would appear to be to allow the debtor to delay payment.  If you must mail copies of invoices or proof of delivery to a customer, the customer will get an additional two to five days to pay.  If you must send original documents, send them by overnight delivery. The relatively small cost of doing so will almost always be outweighed by receiving payment sooner rather than later and knowing the next day whether payment was sent. 

Hint: If customers insist on receiving original invoicess, insist that the customer overnight payment on receipt of the required documentation. 

Edited by Michael C. Dennis and Michael Zininberg.  Mr. Dennis is the author of several books relating to credit risk management and commercial collections.  He can be reached with questions by email at mcdennis13@yahoo.com