CHAPTER 6: COLLECTIONS
and past-due invoices, credits, and cash on account (COA). However, a recent practice has been to suppress credits and cash on account, as the reaction in B2B accounts payable has been to ignore incomplete statement notices. Statements are a nonthreatening reminder to the customer of their unpaid obligations. Most companies’ billing and collection systems have the capability to create electronic past-due customer statements based on prescribed parameters in the system filtering process. Each customer account should receive past-due statements. It is important to think through what you want the statement to accomplish. It should be a trigger to ensure that the party responsible for paying invoices has everything they need to make the payment. If they don’t, the statement should provide them with contact information. There are many statements that do not contain a phone number or web address to facilitate obtaining the invoice. For B2B, some technically proficient companies are including copies of only the past-due invoices with the statement, since a common response from accounts payable is to request copies of the invoices. Statements should be sent out to all customers on a regular basis—typically monthly, but possibly more frequently depending on the number of transactions with customers. A statement should have the appropriate collection language, usually a friendly reminder including verbiage such as, “If these invoices have been paid, please disregard this request.” The statements should be sent out at 30-day intervals; the language should be stronger as unpaid invoices age. B2C statements are more effective than B2B statements. Statements are less effective in getting the customer to pay than a phone call and creative thinking. While it is true that many statements of account are ignored, for many smaller customers it may be the only regular collection contact they receive. For these accounts, a statement is better than no contact at all. In addition, the escalation protocol that may lead to canceling or placing their orders on hold or engaging a collection agency will require several communications to the customer concerning the amount past due and its age. Customer statements of account fulfill that requirement. In B2B, however, statements are not a substitute for invoices. Steve Fulmer, Controller for South Mill Champs, says “Statements are a good idea, but best practice is to send a copy of invoices with the statement.” Accounts payable departments need to pay from an invoice, and in VAT/GST countries the invoice must be an original. Often a collector may get discouraged when AP asks for a copy of the invoice, believing it is just a ploy to delay payment. However, when the invoice is sent to the person who purchased the goods rather than to AP, the invoice is rarely forwarded promptly to AP and may not be forwarded at all. So when the collector calls, AP may not even know they owe money, especially if it is a non-PO invoice (since there is no corresponding purchase order). Letters A series of collection letters—sometimes called dunning letters—are often a part of collection activities. These letters remind the customer of an amount due and request payment. Letters are sent in succession, with the wording and tone changing from a friendly reminder to outlining steps that will be taken if the customer fails to pay, along with escalation regarding the recipient (B2B: first to
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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