Publishers’ Handbook—Finance The Importance of Time in Collections

The importance of time in the cost of collecting past due accounts can not be overestimated. For example, each of the following all-too-familiar statements is a reflection of how time works against successful collections and makes the entire process more costly than it needs to be. “They’re past due.” “They filed for Chapter 11 (or 13) (or 7).” “We can’t reach them on the phone.” “They say the check is in the mail.” “They’re ignoring our letters.”

When a paper hears statements like these, money is being lost and costs are rising. There are two simple facts about credit. The first is that virtually every type of business has to issue credit to make a sale. The second is that no business collects all of its bills on time, every time. When you can’t collect your receivables, you lose money. Probably more than you suspect.

For example, if you operate on a 10 percent margin and you want to stay even, you have to generate $10,000 in new sales for every $1,000 you don’t collect. If you turn accounts over to a typical collection agency that charges an average of 35 percent of whatever is collected, you have to generate an additional $3,500 in new sales just to pay their fee to collect that $1,000 debt.

Is there any way to avoid these problems completely? Probably not. But there are steps you can take to increase the amount they collect. First, recognize the importance of time. Quite simply, the older an account receivable, the less likely you are to collect it. The U.S. Department of Commerce says that an account that is three months past due is worth only $.83 on the dollar. By the time that account is six months past due, it is worth only $.67 on the dollar. Time represents the greatest expense in collections. Based on over 25 years of experience, National Revenue Corporation (NRC), an SNA Associate Member, makes four specific suggestions regarding time management and accounts receivables.

1. Check on the credit-worthiness of your customers regularly. These days, a company’s ability to pay its bills in a timely fashion can sometimes change on a monthly basis. Be sure that clients know what your terms are each time they order from you. Make sure they know what you will do if you are not paid when the bill is due.

2. Make sure you are sending invoices to the correct person at the correct address. It takes time and money just to correct names and addresses on the invoice before collections begin.

3. Pursue your accounts early and vigorously. Your own collection staff is the very best you can use. Let them work. Send a second invoice the first day the account is past due, and make a telephone call when it is ten days past due. Continue this method of regular and intensive pursuit until the bill is 60 to 90 days past due. Pursue your accounts receivables hard and early. Remember, it’s your money.

4. Be aware of the law of diminishing returns on your older accounts. Aged accounts take more time, effort and money to pursue. What happens in most businesses is that a disproportionate amount of time, energy and money is spent on these old accounts. As a result, these slow pays (30-90 days past due) do not get the attention they deserve, and thus, more of them ooze into the seriously delinquent pile. And once they are there, they take up more and more time your staff should be spending on the fresher accounts. This spiral of diminishing returns never gets better without a change in business practice.

Based on our experience with thousands of association members, we recommend to our clients that they turn their slow-pay accounts over to us to collect when they are between 60 – 75 days past due.

Preventive maintenance educates your customers. They soon learn that you are a newspaper and not a banker who is going to finance their operation for free. Every business establishes a priority for paying its bills. Preventive maintenance makes sure your bills receive top priority.

Working accounts early and diligently helps break the bad debt spiral. It reduces to an absolute minimum the number of accounts that have to go to litigation or which have to be written off. In other words, practicing preventive maintenance helps make the business more profitable. For accounts receivables, time is the greatest enemy.