Accounts Receivable Collections

Accounts Receivable is one of a sequence of accounting transactions dealing with the billing of a customer for goods and services that has ordered by that customer. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer, who in turn must pay it within an established time frame called creditor payment terms.

When accounts receivable are not paid, some companies turn them over to third party Accounts Receivable Collections agencies or Accounts Receivable Collections Attorneys who will effort to recover the debt via negotiating payment plans, settlement offers or legal action.

Accounts Receivable Collections are the most important piece of any working capital management in a business. The debtor would like to holdup payment as far as possible. From the business' perspective, the longer the money remains blocked in these debtors, the more expensive it becomes for the business, as then the business is forced to borrow moneys at higher interest rates from banks for working capital. This erodes the profit margin on the product.

An effective and dynamic Accounts Receivable Collections program is not simply a money retrieval system. It must be an integral part of the total sales process. The main objective of the Accounts Receivable Collections program must be to develop customer relations and recover the company's delinquent receivables as quickly and economically as possible, while encouraging the formerly delinquent customer to patronize the company with future good business-business that is paid within the credit terms.

There are three strategic Accounts Receivable Collections programs that are used to collect delinquent accounts receivable. The paper program is highly effective and cost efficient. The telephone program is the focal point of any effective program. Customer visits are the most effective strategy available for an entire class of misunderstood customers.

A well-structured Accounts Receivable Collections program uses all three of these Accounts Receivable Collections strategies. Each Accounts Receivable Collections strategy is most effective for a specific type of delinquent account. It all comes down to dollars invested versus dollars outstanding. This means you use the least expensive, the paper program, to collect the low-dollar accounts, and the higher cost methods to collect the high balance, or high-volume accounts.