Whenever a company sells on credit, it is inevitable that some customers will fail to pay their accounts in accordance with the agreed-upon terms of the sale. While there are various reasons why customers do not pay their accounts on time, it is important for companies to have systems in place to handle their past-due accounts receivables.
In general, delinquent accounts can be separated into two categories: those who are unable to pay and those who are unwilling to pay. However, depending on the sophistication of the company's internal collection procedures, those responsible for accounts receivable may not always make this distinction. As a result, all past-due accounts are often treated identically.
It is essential to remember that a company's primary concern is to retain customers as future buyers. Therefore, some companies may permit their customers to pay beyond the terms of the sale with no penalty, establishing an unofficial term of sale. However, problems may arise when a small account becomes a very large account, and the company insists upon payment according to the terms of sale. In such cases, some past-due accounts are self-inflicted wounds.
The credit manager or whoever is responsible for handling accounts receivable has many other duties, but contacting customers with past-due accounts is still an important responsibility. Different companies may have varying policies dictating what actions should be taken at different points after the customer fails to pay according to the terms of the sale. However, the procedures all share some commonalities.
Typically, when an account goes beyond 30 days or another designated date set by the company, another invoice is sent stamped as past due. If this does not produce a result, a letter is sent to the customer, followed by several other letters if necessary. In most cases, form letters are used to save time and effort.
If the letters fail to elicit a response, the debtor may be phoned. It is important to note that customers who pay according to the terms of the sale are not debtors, while those who do not pay on time become debtors. Depending on the seriousness of the delinquency, the account may be assigned to someone in the company's internal collection department, who may or may not be a skilled collector.
However, in most instances, the person contacting the debtor is not a trained, professional, commercial debt collector. They may not fully explore the circumstances and may not be able to distinguish between those debtors who are unable to pay and those who are unwilling to pay. In most cases, both types of debtors are treated the same way. Moreover, if the debtor is working with the company to meet their commitments to pay their account, the company may even sell to the debtor again.
Sometimes, the salesperson who sold to the debtor may be sent to visit the debtor's place of business to determine why the debtor has not paid their account. However, the salesperson is not a professional debt collector, and their primary concern is to make sales. Moreover, while they are trying to collect the debt, they are not doing what they are being paid to do, which is to sell more products and/or services for the company.
If the debtor still fails to pay, companies may take various actions, including a credit hold, check upfront, COD, or ship nothing, forward to an attorney, or turn accounts over to a commercial debt collection agency. It is important to distinguish between customers and debtors and to take appropriate action to recover unpaid debts.
In conclusion, companies that sell on credit must have systems in place to handle past-due accounts receivables. Failing to do so can result in negative impacts, including financial loss, reduced morale, and even legal issues. Therefore, it is essential for companies to carefully consider their policies and procedures for handling delinquent
It's important to know if you have a customer or a debtor on your hands. If you have a debtor, call us today at 303-351-0464. We can assist you with your commercial debt recovery.