For any company, overdue accounts wreak havoc on cash flow and liquid assets. While accounts receivables can be considered an asset, in the long term overdue accounts actually become a liability. It’s easy to say “don’t do business with deadbeats”, but the reality is much more complex. While overdue accounts are not entirely unavoidable, it is possible to lower the number of such accounts a company lists on the books. There are several ways to cut down on delinquent accounts.
Implement a firm credit policy, including credit rating checks, terms of payment, as well as the repercussions of non-payment-and stick to it. For instance, rapid credit checks are possible with today’s technology, often completed in seconds.
Establish rules for different credit scores and groups-such as requiring a deposit for opening an account; or forming different types of accounts based on credit score-such as spending limit accounts, or even limiting the amount a customer is allowed to put on the account before it becomes cash only.
Also, establish a reward for timely consistent payments on account. For a deposit account, you can pay back the deposit after a year of good account standing and on time payments. Or in the case of spending limit accounts, after a year of good account behavior, on time payments and not going over that limit, you can remove the spending limit.
Make sure the customer clearly understands and is afforded a copy of company credit policies. This should be enumerated in the contract agreement, signed by both parties of course, and highlighted on invoices. Clearly stamp the payment due date on the invoice or statement and be firm that there will be consequences for non-payment.
Use incentives-rewards and consequences for payment patterns. For instance, allow a small discount for early payment, or demand a late fee for late payment. Or even, as some cell phone service companies and insurance companies do, offer a discount for on line payments or automatic account payments.
Use a Credit Collection policy, outlined and implemented well in advance, incorporated into contract understanding. Thus the customer cannot say, “but I didn’t know”. If he reads the contract, and anyone signing a contract should read it first, he will be aware of non-payment consequences before the first penny is spent. If a customer does not pay, either on time or at all, implement those consequences without fail. These consequences can include anything and everything from a small late fee, to suspension of service, to collections agencies, to taking the matter to court.
Make sure your customers know you keep careful track of account standings. By all means, don’t hesitate to call if a customer is so much as one day late! During that call, remind customer of account balance, due date, and repercussions for non-payment. If necessary, take a partial payment with stern reminders of consequences should remaining balance not be paid. Many cell phone companies and utility companies follow this practice. Aware that you monitor accounts, most customers will be careful to pay on time.
Lastly, don’t do any more business with a customer whose account is delinquent. Put them on a cash only basis, or simply refuse service. Continuing to do business only makes the problem worse and the customer will know he can get away with no payment or chronically late payment. After all, you are not a bank. Nor are you in business to give it all away.
While implementing these steps may not completely erase overdue accounts, it will certainly help in keeping the number of overdue accounts to a minimum, and help increase the number of viable, current accounts in good standing.
On the flip side of the coin, however, many people in today’s economy want and need to avoid overdue accounts. This is also true of business accounts dealing with all sorts of vendors. Good rules to follow are: don’t spend more than you have, and, always pay your bills on time. Individual consumers as well as businesses can benefit from this advice. Easier said than done, you might think, and most in today’s difficult economy, with rising unemployment and escalating prices, would agree. But it’s not as difficult as one might think.
Despite the many easy ways to get into debt, there are ways to avoid it as well. The two rules mentioned above are broad and generalized but we’ll break down into effective strategies.
Don’t spend more than you have. In effect, budget your income so you don’t spend any more than you bring in. A good, realistic budget can allow room for wants and savings as well as every day needs. Carefully list your net income and your expenses. Include all sources of income, whether from a job, outside payments, part time work at home, unemployment, annuities/settlements, alimony/child support, or other payments made to you. For business, this would include accounts receivable, interest income from accounts, investments, etc. On the other side of the equation are expenses. To the consumer, this includes mortgage or rent and other items associated with having a residence. Also budget in living expenses such as food, utilities, and other non-food items required for daily life and comfort. If your car/vehicle is not paid for, include that payment. Also budget for entertainment and miscellaneous items such as eating out, cell phones etc. In business this may well include payroll expenses, wages paid, returns to investors and stock holders, facility ownership/rent and any other overhead required to effectively run your business, no matter how large or small. It is important to also include credit payments: ie: credit cards, loan payments, and ongoing contracts such as rental agreements. Where possible, include an amount to set aside for a rainy day, for those unforeseen expenses due to accident or sudden mishap, like unemployment or major repairs. Or simply for a fun vacation or a major purchase.
Knowing how much you have extra to spend, you can easily decide which expenditures are important and which can be put off to a later date. If you have the money for that large screen TV, then make the purchase. If not, put it off until you have the funds.
There is an overabundance of credit card offers out there, but don’t grab onto every one that comes your way. This is where massive credit card debt occurs. Instead of planning to use funds to pay off a credit card, keep one or two on hand for emergencies, but you can utilize a debit card for those purchases you have the money for and avoid high interest rates. Debit cards also allow you access to your cash without carrying around large amounts of money or constantly running to the bank or ATM. For business, debit cards can be used for expense accounts, allowing employees access to a certain amount of expense money without incurring those ridiculous interest rate charges or minimum balance/payment hassles.
The second rule of thumb mentioned above is, always pay your bills on time. This is quite simple to follow. Knowing your paydays can help you schedule bill payments, often in advance. You can also take advantage of recurring monthly automatic payments as well as on line or over the phone payments. If you worry about paying large bills all at once, pay a little at a time, frequently, before the due date and by the time the bill is due, the amount is much smaller and easier to handle. Thus you eliminate the need to split a bill into smaller late payments, thus avoiding late fees and other penalties.
Keep meticulous track of bills and payments. There are good computer software programs that can help do this, in fact, will often do it for you. This also enables you to see your income and expenditures in easy to view, easy to understand reports and graphs.
Set up your automatic payments and eliminate any worries, including wondering if the payment was made or if you forgot to pay it, or lost the invoice. This may also allow you certain discounts for paying on line or over the phone, through companies that offer such incentives.
Pay early or at least on time, avoiding late fees and interest penalties.
For business, always pay your vendors and employees without delay. Even though your customers may not have paid you as yet, if you have budgeted and planned the company finances well, you should always have the monies available to make payment where due. This develops good business relations and enhances employer/employee relations, as well as establishing good company credit records..
Accounting programs and practices should be straightforward and honest, meticulous and aboveboard to avoid the scandals that have plagued large companies in the last several years.
Good business practice leads to a larger customer base and increased profits as well as an excellent public reputation.
In conclusion, both individual consumers and businesses large and small can benefit from keeping overdue accounts to a minimum. This keeps your credit scores excellent and allows peace of mind in financial matters. The above outlined options, practiced over time, can only build confidence. With confidence, comes a solid financial background and it bodes well for future endeavors.
