Prompt action pays off
By Deryk CowardFeatures Business Intelligence
As time goes on, we become less and less inclined to deal with old accounts receivable, otherwise known as bad debt. Pretty soon, the account is over 90 days old and there is no real prospect of it getting paid. Rather than simply lamenting the impact on your cash flow, you should do something about it. In this arena, action gets results. Inaction on your part will more than likely not yield anything positive for your organization.
The first step is taking stock. This may sound simple, but if you don’t know what the status of your receivables is, you are at a significant disadvantage. In my experience, many rental companies simply haven’t taken the time to assess how much they are owed, and by whom. Spend whatever amount of time it takes to fully understand who owes you money, how much they owe you, how long the debt has been outstanding, whether the debtor owes money to others as well and what obstacles are standing in the way of collection. You will be surprised how quickly this can be done. You may have hundreds of accounts, but usually this process can be adequately covered in two or three hours.
One helpful tip, which has really worked for my clients, is to schedule a Saturday or Sunday morning at the office with staff that can help with the receivables. Order breakfast into the office and give them a Friday afternoon off in return. Once you are in the office for a few hours, with the sole goal of reviewing and assessing your receivables, you will be amazed at the progress achieved by the end of the session.
Next, you need to develop an action plan. Assess which files need to be followed up on by someone in your organization and which ones need to be referred out. If a receivable is beyond the time period normally expected in your industry, then it’s a problem and needs to be dealt with right away, one way or another. If you assign the follow-up to someone in your organization, put your own follow-up mechanisms in place so it doesn’t simply get ignored.
One practical tip I have seen work is compensating your employees with a cash bonus for recovering receivables. Any bonus or incentive you pay to an employee will be less than what you pay to a lawyer or collection agency, so don’t be afraid to make the incentive worth their while. After all, they’re the ones who likely have the relationship with the client and can potentially bring the money in.
Once you have made a decision to refer a receivable out of your organization, act on it quickly. There is absolutely no point in sitting on it. I can’t repeat often enough that every delay in action causes the likelihood of recovery to inevitably diminish.
Having a good accountant is important for many reasons, not the least of which is dealing with your receivables. There are opportunities for you to minimize, and in some cases recover, taxes which would otherwise be payable on your accounts receivable. If you are not getting paid by your customers, you should at the very least not be paying any more tax than necessary. Speak to your accountant about your receivables and determine whether you should be doing things differently. On more than one occasion, I have seen a client of mine talk to his or her accountant about their receivables and end up saving a significant amount of money simply by adjusting one or more of their practices.
This article is not intended as legal advice. If you have an outstanding debt that you wish to collect, or if you wish to conduct a review of your practices, you are encouraged to consult with an attorney in your province. The information in this article is based on Manitoba law only, and may differ from other jurisdictions.
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