Credit Insurance and Accounts Receivable Insurance

The Top 6 Best Practices For Faster Accounts Receivables Collections

by Heather Smart Johnson

The Top 6 Best Practices For Faster Accounts Receivables Collections

Accounts receivables refers to the money owed to your business by your customers. When the amount owed becomes past due, it is referred to as “collections.” Practices around collecting debts owed affect your company’s cash flow and can determine your ability to grow and sometimes even whether you are able to stay in business.

  1. Make sure you have issued an invoice. It is hard for a customer to pay a bill they have not received. Additionally, make sure it is easy for your customers to pay invoices, such as making sure your invoices are clear and complete.
  2. Determine the current payment status. An A/R aging report will track and measure the payment status of all your customers.
  3. Call and/or email the customer and remind them that their account is past due. If you do not reach them or if they do not respond, follow-up with multiple written reminders. Sometimes this can be enough to get the company to pay.
  4. Write a Letter of Demand. This letter should include how much the business owes your company, what they owe the money for, and when they need to pay the invoice. Print “Letter of Demand” at the top of the letter.
  5. Consider negotiating a settlement or using a mediator. If you are not being paid due to a trade dispute or other disagreement, a third-party mediator may be able to help you resolve the situation and recover some or all of your money. Mediators specialize in finding mutually agreeable solutions to these kinds of issues. Alternatively, you could Find A Business Collection Agency.
  6. Begin court proceedings. If you do not hear from your customer and the debt is still unpaid, you may sue the customer for the unpaid debt, as well as the legal costs and fees you incur. Court proceedings can take a long time and fees and costs can be very high. In some cases, for instance, if your customer is insolvent due to bankruptcy, you may not be able to recover all of the debt, even if the court rules in your favor. Find Business Bankruptcy & Preference Claim Attorneys

Using A Debt Collector

If you are looking for another option, you might consider outsourcing to a collections agency. In some models, debt collectors only get paid when they recover an outstanding debt — but their fees can range from 25% – 45% of the total amount owed.

Protecting Your Assets

Trade credit insurance (also known as accounts receivable insurance or business credit insurance) can protect your company from loss and help mitigate risk. Credit insurance reimburses your company if your covered customer cannot pay and has other added benefits as well. Credit insurance protects your most valuable asset: your accounts receivable.

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