WELCOME [ Log In · Register ]        SITE [ Search · Page Index · Recent Changes ]    RSS

When to Place an Account for Collection

People often ponder this question:  When should I place an account with a third party for collection?  The answer is that when you do so should not be based only on how many days past due the account has become.  I think it is unwise to impose artificial deadlines such as this:  Any customer more than 150 days past due will be placed for collection.  

Instead, consider a policy that allows for judgment.  In general, an account should be placed with a third party for collection when the department manager feels that the department is no longer making adequate progress in its collection efforts. However, Credit Managers should seriously consider doing so when the following conditions exist alone, or in combination:

  • A customer has bounced checks to you or other vendors;
  • The customer refuses to replace the bounced check;
  • The creditor is no longer making progress toward clearing the unpaid balance;
  • If the customer will not take your calls;
  • The customer will not return your calls;
  • The account is 90 days or more past due;
  • Federal or state tax liens have recently been placed on the debtor company;
  • There is significant employee turnover in the company, especially among senior employees;
  • The customer has broken two or more commitments to pay the past due balance;
  • The customer promises to pay one amount, but pays significantly less;
  • The debtor refuses to acknowledge the balance due in writing;
  • The customer proposes a payment plan, but refuses to sign a Promissory Note;
  • The debtor is considering filing for bankruptcy protection;
  • The customer is changing banks;
  • The debtor is in violation of its bank loan covenants;
  • The delinquent customer cannot pay until arrangements with a new bank are settled;
  • The bank has frozen the customer's account;
  • The debtor issues a check placed on a closed;
  • The company was recently sold;
  • There was a bulk sale of assets;
  • The customer has proposed a payment plan to trade creditors as an alternative to a bankruptcy filing;
  • A customer asks you to speak with their "work-out" specialist;
  • When you threaten to place the customer for collection, and they seem unconcerned;
  • The customer's phone is disconnected;
  • Your mail is returned;
  • When there has been an ownership change;
  • The new owner claims not to be responsible for the debts of the former owner(s);
  • If you cannot reach a decision maker;
  • You cannot get a reasonable commitment for payment from the decision maker;
  • You learn the customer is being sued by other trade creditors;
  • The account has been placed for collection by other trade creditors;
  • The business is for sale;
  • If you are told the business is for sale;
  • You are offered payment only after the sale is completed;
  • Creditors that once sold the customer on open-account terms now sell on COD terms;
  • There is significant deterioration in payments to creditors;
  • The debtor company does not respond to a final demand for payment.

© 2011.  Michael C. Dennis.  All Rights Reserved