All companies, if they sell on credit at one time or another will have customers who do not pay their accounts according to the terms of the sale. There are a variety of reasons why companies do not pay their accounts in accordance with the agreed terms.
Whether companies are small, medium, or large size companies, they will all have some system to handle their past-due accounts receivables. Delinquent accounts receivables can generally be separated into two categories. Those who are unable to pay and those who are unwilling to pay. This boils down to the customer's ability and intent. In most instances (depending on the sophistication of the company's internal collection procedures), the people who are responsible for accounts receivable may or may not make this distinction. The result of this is that all accounts that are past due are treated identically.
It must be remembered that a company's first concern is to retain that customer as a future buyer. Therefore some companies do permit their customers to pay beyond the terms of the sale with no penalty. Often times this becomes a rule, rather than an exception and establishes an unofficial term of sale. When a small account becomes a very large account and the company insists upon payment according to the terms of sale, some problems may result. The point is, some past due accounts are self-inflicted wounds.
The credit manager or whoever has been assigned the responsibility of handling accounts receivable has a number of other duties. Time spent contacting customers whose accounts are past due may consume only a small percentage of that individual's time but generally, all companies have some kind of policy that dictates what actions should be taken at what point after the customer has failed to pay according to the terms of the sale. While these procedures will vary from company to company. These procedures all have some distinct similarities.
Normally when an account goes beyond 30 days or some other designated date made by the company another invoice may be sent stamped as past due. If this does not produce a result, a letter is sent to the customer. If there is still no response, this may be followed by several other letters. In most instances, form letters are used. Usually, it requires too much time and effort to write a personally dictated letter.
If the letters fail to bring any response, normally the next step is to phone the debtor. Why are they now called debtors? Because now the customer has become a debtor. Customers are those businesses that are paying according to the terms of the sale. Debtors are those businesses that are not paying according to the terms of the sale. This is a distinction that must be remembered when looking at past due accounts.
Depending on the seriousness of the delinquency, the account may be assigned to someone in their internal collection department who may phone the accounts. This person may be a very skilled collector, but in most instances, the person is not. If the account is seriously past due, then the top-ranking person responsible for accounts receiveable may phone the debtor. In a small company, the president or owner may contact the debtor. The point is, those persons who are contacting the debtor are not trained, professional, commercial debt collectors.
In most instances, their first concern is rehabilitating the account so that they can sell the debtor as a customer again. They may not fully explore the circumstances and may not be able to fully distinguish between those debtors who are unable to pay and those who are unwilling to pay. In most cases, both are treated the exact same way. In fact, 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.
In other instances, if the debtor fails to pay, the salesperson who sold the debtor in the first place may be sent to visit the debtor's place of business to determine why the debtor has not the account. Here again, the company salesperson is not a professional debt collector. He/She is mainly concerned about making sales. Furthermore, while the salesperson is trying to collect the debt, He/She is not doing what He/She is being paid to do, which is selling more products and/or services for the company. Sometimes, if the debtor fails to pay the amount of the unpaid balance is charged against a salesperson's commission. This is not only demotivating for the salesperson, this hits them where it hurts the most. In their wallet! This is not good for morale and not the basis of building a hard-hitting salesforce.
If the debtor still fails to pay at this point, companies may take one of several actions, which included, 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 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.