Collections, A Necessary Evil Of Business

We all hate collections, buts it´s a reality of business life. Not all customers pay or pay on time. Regardless of whether you´re mowing lawns, selling your time or selling multi-million dollar technology solutions, the reality is you´ll encounter AR problems from time-to-time. As a reality, the practical objective is not to eliminate it (AR), but manage it as effectively and small as you possibly can.

How do you best manage AR? That´s the problem we´re now addressing with Guardian Medical Group, as part of the 6 for ´06 program.

The first part of solving any problem, AR included, is knowing what and how big the problem is. In this case, what does the aging report look like — the report on receivables broken-down into 30, 60 and 90+ days?

When our project began, the aging report showed the big problem to be 31-60 days. This is where we saw an inordinate amount of unpaid customer invoices. Analyzing this category, we identified some process and procedure things we could quickly implement to reduce this category — a category famous for procrastinating payers and customers with temporary cash flow problems. Just a few changes like clarifying payment due dates, offering credit card payments, and reducing time to process invoices made a tremendous improvement to this category and an overall 33% reduction to AR.

Now, looking at the aging report we see an inordinate amount of AR in the 90+ category. Ouch! This is a tough category, full of disputes, formal collection, and customers with serious cash flow problem of their own.

The first thing to look at in the 90+ category is where does the + end? At what point do you write off a receivable and remove it from your books? For Guardian, that´s the question of the day. And one they´re addressing with the accountant and collection agency they employ. Their accountant is important in this discussion because accounting methods determine whether or not (and how) a tax write-off can happen (more on this later) and their collection agency is being questioned to determine their historical success in collection and gain an understanding of the aging of accounts they service for Guardian. From here, we´ll determine where the end of a receivable lies and work our collection process backwards.

There´s a lot more to follow on this subject.

What are some of the creative things you´ve done or seen done to reduce AR?