CHAPTER 6: COLLECTIONS
The best way to handle customers with a credit balance is to notify the sales rep of the credit amount so the rep can use this information to call the customer and possibly gain an order. Being proactive prevents credit balances from growing old and becoming available to fraudsters, and clearing them can not only increase sales but also grow the relationship between the sales rep and AR. COLLECTION AGENCIES After collection calls and other collection efforts have failed, AR may decide to turn over severely past-due customer accounts to legal counsel or an approved collection agency to pursue collection. Collection agencies are engaged if the organization has deemed it appropriate to outsource collection for amounts that are delinquent by more than some predetermined number of days. Sometimes, despite a clear and well-executed collections process, there will be the occasional debtor who still won’t pay. When the opportunity costs of continuing to pursue the debt internally become prohibitive, the business is left with four options, broadly speaking: 1. Write the debt off; 2. Hire a collection attorney; 3. Engage a collection agency; or 4. Sell the receivable. Writing off the debt appears to be the least attractive option, but if the amount is not large enough to warrant turning it over to third-party professionals, it may be the prudent business choice. Collection agencies and lawyers can be effective, but their fees are often high—amounts of up to half of an outstanding debt are not unheard of. The advantage of selling the receivable is the certainty of the amount you will receive and an end to further obligation on your part. The advantage of hiring a collection attorney rather than an agency is that the attorney can represent the business in court if necessary (in addition to providing collection services similar to those offered by agencies). If the business expects to file a significant number of bad-debt lawsuits, an attorney might be the right choice. Collection agencies do not necessarily provide legal representation but rather concentrate on debt pursuit outside the court system. The decision to engage an attorney or agency depends on the business’s needs and culture, as well as the cost. Whether choosing an agency or an attorney (or both), it is important to find the one who is right for the business, who understands the nature and complexities of the particular business and industry, and who shares the company’s corporate values. Since the agency or attorney represents the firm, it is important to find one whose business practices are professional and legally compliant. The fees charged by collections agencies can vary substantially, so lower fees can often be obtained by shopping around. An accountant, attorney, or other professional advisor may be able to provide references for collection agencies or lawyers. Other firms (benchmark companies) might also have good recommendations, as should the business’s trade association. There are also local and national collection professional associations, such as the Association of Credit and Collections Professionals International (ACCA International) that can provide referrals.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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