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Early Stage Recovery Matters in Business to Business Collections

by Erica Nelson on December 09, 2014

Early Stage Recovery

The longer your accounts receivables remain unpaid, the greater the likelihood they will never be paid. By some statistics, 5.2 percent of outstanding invoices are written off if they are older than 90 days. This is often a result of businesses not feeling they can successfully collect on these invoices. This statistic alone shows the value of early stage recovery and why it can help improve your overall collections and your cash flow. The same statistics shows that in certain geographical locations, more than 50 percent of invoices that are more than 90 days past due are ultimately written off as uncollectible.

What is early stage recovery?

Early stage recovery involves a package of actions that your team or a partner takes to help encourage on-time payment of invoices by your customers, from the day your invoice is issued to when it is delinquent. Businesses who sell goods and services to other businesses often fail to consider the potential for default on an invoice. They feel that business relationships are important enough that partners will pay bills on time to preserve that relationship. However, the fact remains that not all business owners pay their invoices on time. Your accounts receivable department does not always have the time available to follow up with clients which can result in early stage recovery failure. Some of the common steps in early stage recovery include:

  • Invoice follow-up – This is even more important if your invoices are included in the shipment of goods. When you are shipping items, invoices can be inadvertently misplaced or not received. Following up with your business partner to make sure they received their invoice is one of the first steps in the early stage recovery process and will help promote on-time payment. Additionally, if an invoice remains outstanding on the due date, or a few days after, follow-up in the early stage process is important to remind clients that the invoice is still unpaid. This helps to reduce the number of accounts that become drastically delinquent.

  • Product and invoice accuracy – Once a product has been shipped, contacting your business partner and inquiring about receipt of product can encourage your partner to review their shipment and invoice for accuracy. If a business is not happy with a product, they are less likely to pay for it; inaccurate invoices can also be a problem for collections.

  • Confirm payment terms – Your payment terms should be clearly printed in your invoice and when you speak with your business partner, you should remind them of your payment terms. This step will remind them of the status of the invoice as well as confirm when you expect payment.

Time constraints facing all AR departments

One of the primary reasons most businesses do not have an early recovery strategy in place is the lack of manpower to follow up on invoices once they are issued. Your accounts receivable department should have access to reports that can identify when an account should be scheduled for a telephone call. In many cases, a call 7-10 days prior to an account being due can prompt earlier payment. Oftentimes, this is why so many mid-sized and large businesses work with an early stage collection partner; it allows them to free up their staff members for day-to-day operations while still pursuing early stage recovery options and reducing the number of delinquent accounts.

How does early stage recovery improve cash flow?

Business owners depend on regular cash flow to keep their own business in the black. The payment of your invoices may depend on getting timely payments for the products you provide to your business partners. The relationship between regular cash flow and timely invoice payments is clear: The sooner you receive payment for products you have provided, the better your bottom line. Cash flow is important to businesses of all sizes and in some cases, your business partners may be putting off payment to improve their own working capital while harming your bottom line.

Improving average delinquencies

You may be surprised to find out that the average business pays their invoices approximately six days after they are due. According to The Credit Research Foundation, a 2014 study, shows that the average time to collect on an invoice has increased from 4.60 days in 2013 to 6 days in 2014.  For most businesses, this means early recovery is even more important to ensure that invoices are paid on time.

In conclusion

One of the biggest challenges with unpaid invoices is tracking days late, amounts owed, and ensuring a systematic approach to collections. Business to business collection efforts need to be consistent and need to be handled in a manner that protects your business relationships while still being aggressive enough to avoid having to write off a debt. Today, you will find more companies than ever, especially mid-sized and larger companies, developing strong working relationships with collection partners. These relationships allow them additional focus and advanced tools that can facilitate the collections process.

Working with an early stage collections partner enables your business to pursue early stage collections without over-burdening your current staff. Additionally, a consistent, systematic approach to account follow-up will help to improve cash flow and client relationships. At D&S Global Solutions, we distinguish ourselves not only with the set of diverse, customized solutions we offer for each of our clients, but through the relationships we build. Cultivating our partners’ relationships with their customers is just as important to us as cultivating our own with our partners. To learn more about how we can assist your business with early stage recovery, late stage recovery, any stage of the accounts receivable, or other needs your business may have, reach out to us.
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Lonnie Larson, CEO, D&S Global Solutions