Why Delinquent Accounts Require Swift Action, by Sam Fensterstock

When an accounts receivable ages past its due date, it is vitally important to take positive action, not only to maintain a healthy cash flow but to adapt to constantly changing market conditions. In our current economic times, a savvy management understands that managing the cost of doing business is vitally important. Cash is king, and too many delinquent accounts can bring your business to a standstill. Don’t let current economic conditions provide the basis for extending the time you will permit an account to age prior to instituting formal collection efforts. Relaxing payment requirements will severely impact your company’s cash flow and bottom line.


A survey by the Commercial Law League of America (CLLA) illustrates how much more difficult it is to collect delinquent debt as it ages.

Source: Commercial Law League of America

According to the survey, after only three months, the probability is that you will only collect about $0.71 of each delinquent dollar. After six months, only about $0.55 of each dollar will be collected. And after one year, you will have to settle for about $0.22 of every delinquent dollar. Essentially, time is your worst enemy. The sooner you implement aggressive collection proceedings the better off you will be.


When you write-off an account, cash flow is affected, but so are sales and marketing.

The “multiplier” impact on sales from bad account write-offs is shown in the following table:

For example, a business with a net profit of 2%, that experiences $100,000 in write-offs, requires an additional $5,000,000 in sales to offset the lost profit on the $100,000 in write-offs. Or, if you have a net profit of 4% and write-off $250,000 in bad debts you need an additional $6,250,000 in sales to recoup the lost profit. All the more reason to act sooner rather than later.


The primary reason most companies use a third party collection agency is because their internal efforts to collect the debt have failed and management believes that the company’s resources are best spent making better credit decisions and attending to the customers that are paying their bills rather than wasting their personnel’s time chasing accounts that are not going to pay.

A commercial collection agency is the embodiment of “third party psychology”. Once a third party agency becomes involved the debtor knows that the third party will do whatever is necessary to collect the money due including employing legal remedies if necessary to collect the debt.

A collection agency will not have any sympathy for the stall tactics and excuses employed by debtors. “Third party psychology” will motivate the debtor to pay because they want to avoid the additional costs, and the potential embarrassment that comes with a prolonged collection effort and the possibility of litigation together with negative information provided to credit reporting companies that may impact their ability to get credit in the future.

A professional collection agency has resources, methods and techniques for collecting delinquent debt that are not available to the average company. In some cases, a full asset and liability search is required to understand the current financial situation of the debtor and their ability to pay the money owed.

In particular, an agency has the ability to access databases that may be needed to assist in identifying and locating the responsible party related to the debt and in identifying and locating assets that may be used to satisfying the debt.

State-of-the-art collection software is expensive but vital when pursuing delinquent debtors. Collection agencies today utilize software that merges all account information into a sophisticated database that can be used to coordinate all collection activity, i.e., telephone calls, call history and notes, follow-ups, promises, call-dialers, collection letters series, etc. to maximize the collection process while keeping costs down. The result is a complete record of all collection history and the ability to use this information to make better collection decisions.

The above are only some of the reasons to use a professional collection agency. There are many more, like skip tracing for example, but you get the point.


Professional collection agencies usually work on a contingency fee bases. If they don’t collect they don’t get paid. Additionally, agencies are also adding and collecting the collection costs and attorney fees to the past due balance. This helps to reduce the overall collection related costs if a collection is made. Collection personnel employed by agencies are primarily motivated by the opportunity to make more money. Today, most collection agencies compensate their collection staff based on their performance rather than on an hourly basis. This has increased individual collector performance. In summary, when you utilize a professional collection agency they will exert every effort possible to collect the money due you. If they aren’t successful they have increased their overhead and impacted their bottom line. Not a welcome outcome.


When should you employ the services of a professional collection agency? According to the chart and table above as soon as you are being stonewalled by your debtor. The sooner you act the more likely you are to collect at least some of the delinquent debt. And, the multiplier effect of write-offs is significant. Timing is everything if you want to maximize your cash flow. The increase in debt that is not collectible from 90 days overdue to 180 days overdue is over 44%. Sooner is better!

For information about AG Adjustments and our commercial collection services visit www.agaltd.com or email us at info@agaltd.com.