A publication for Credit and Finance Professionals
Let Go of Your Baby
authored by Matt O’Connor
Like most of the workforce in the
electronics industry, credit and
collections professionals are increasingly
being forced by corporate higher
ups to do more with less. Unfortunately,
one of the end results is a decreased
emphasis on placing delinquent accounts
for collection in a timely basis.
Credit managers are also feeling more
pressure to work accounts internally for
lengthier periods of time.
Now, more than ever, it is imperative
to place claims in a timely fashion.
Many accounts are now being placed
after six, nine, or even twelve months.
By the time such overdue accounts finally
reach collection placement the
likelihood of recovery has waned significantly.
After six months you can
count on collecting just less than 50%
of your claims! (see chart)
One reason many credit professionals
feel pressured and avoid placing a
customer into collections is fear of souring
the relationship. This is an unfounded
assumption that is overcome
by many professional collection agencies
truly wanting to work with a customer
and foster future transactions
between the creditor and debtor.
Compounding this hesitance to
place accounts into collection are salespeople
hungry to meet their sales goals
and commission targets. In many instances
sales professionals are
morphing into part relationship manager
and part collector. This was something
unheard of during the boom years
of the 1980’s and 1990’s.
Taking into account the multifaceted
dynamic and unfamiliar territory facing
credit professionals it is clear that a
solid framework must exist for deciding
to place accounts into collection.
You need to draw the line and have a
clear date of delinquency. This means
that individuals overseeing credit and
collection functions must keep a close
eye on your accounts receivable aging and be adamant about placing accounts
into collection after a certain designated
date of delinquency.
Of course exceptions will exist, but
adhering to a strict framework like this
will ensure an improved recovery rate
for all accounts. Although the pressures
to keep accounts in-house are strong,
the benefits of timely placement of accounts
into collection are quite clear.
Illustrating the benefits of timely
collection placements is the steep drop
off in the likelihood of write offs. Most
industry surveys estimate the likelihood
of collection after twelve months at only
10%. It just does not make sense to hold
onto accounts beyond 90 days. So remember,
sometimes you just need to "let
go of your baby!"
