Collection Time Line

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

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

This is one model of a collection timeline:

• 3 days past due: First collection call by the collector. Payment commitment should be confirmed by fax.
• 10 days past due: Follow up call by collector to find out why payment has not been received. Follow up on any commitment made is made by fax. First dunning letter mailed.
• 17 days past due: Third collection call 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 at this point on:
  • three broken commitments, or
  • refusal to make a reasonable payment commitment.
• 26 days past due: First call from management.
• 30 days past due: Credit hold and follow up call from management. Second dunning notice mailed.
• 35 days past due: Second management collection call and first customized collection letter.
• 40 days past due: Third management collection call. Second customized letter. Verbal payment request.
• 45 days past due: Written demand for payment.
• 60 days past due: Formal written demand for immediate payment in full of the past due balance, 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: Most trade creditors would consider this to be an aggressive collection schedule.

Expediting Payment

It is a good idea to keep customers' accounts payable department's fax numbers 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, ask why. Chances are there is no compelling need for "original documentation" but requiring it permits the debtor to delay payment. For example, if you mail the documentation to the customer, they have an additional two to five days of the use of your money. If you must send original documents, overnight them. The small cost of doing so will almost always be outweighed by:

• Receiving payment sooner rather than later and
• Being able to call the next day to confirm that payment is on its way.

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

Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.