One of the questions that I am frequently asked is this: When should I place an account for collection? In my opinion, most creditors hang onto delinquent debts far too long before placing a debtor company for collection. There are a variety of reasons that this is true, including hope that the debtor will pull out of their downward spiral just in time. The problem with holding on too long is that the older a past due balance becomes, the less collectable it becomes. The real problem is that the older the debt becomes, the faster the probability of collecting approaches zero.
There is another factor worth considering as it relates to working seriously delinquent accounts and it relates to the fact that the time spent chasing accounts you have held onto for too long is time and energy and focus that is taken away from collecting from debtors that are both able and willing to pay, but require a gentle nudge from you to release payment.
I think holding onto too long is a mistake that can be easily corrected. How? By making a commitment to place accounts for collection when you find that you are no longer making reasonable progress in your collection efforts. Here are a few examples of scenarios suggesting that it is time to use a third party collection agency:
- Your customer will not take or return your calls;
- The account is now 90 days or more past due;
- The debtor has broken two or more commitments to pay the past due balance;
- The debtor promised to pay one amount, but paid significantly less;
- The debtor’s phone is disconnected;
- The debtor has bounced a check to you but cannot or will not try to make it good.
That’s my opinion. What’s yours?
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.