Collections – When to Place Accounts For Collection

Posted on

I once had a boss that taught me that the best time to mow the lawn was “just before it needs it”. He said, “if you look out the window and say the grass needs to be cut, it’s too late.”  The same is true in the world of accounts receivable management. The best time to place accounts for collection is “just before it needs it”!

Think about it, most of the time when we decide that it’s time to take action it is because we called and the phone was disconnected, or we sent a statement or late notice and it was returned undeliverable. Granted, sometimes a company will close up just days after ordering, but that is really a rare occurrence.

A while back I was given the opportunity to say a few words at a sales meeting, so I proposed the “Johnnie Cochran method of identifying bad accounts”.  For those of you that don’t remember Johnnie Cochran during the O.J. Simpson trial coined the phrase, “If the glove doesn’t fit, you must acquit”.  Well, I suggested these two phrases: If the phone is disconnected, it won’t get collected; and, If you have to skip trace it, it’s just too late to place it.  As you can imagine, that gained quite a few laughs. But the fact is, if the account is to that point, forget about it.  

Now I am not saying that accounts with disconnected phone numbers never get collected. If we never collected accounts that had to be skip-traced, we would not be worth our salt as a collection agency. What I am saying is that companies that use that as a method of determining when to place, get a much lower collections return than companies that have a timeline that they follow most of the time.

Many experts in the field agree that a timeline for accounts receivable needs to be followed in order to maintain positive cash-flow.  The exact timeline depends mostly on your terms. Suppose for a moment that your terms are the normal “net-30”, the following might be a timeline that you would use:

Day -1 You ship your product, or provide service to your customer, and invoice them. They now have thirty days to pay, according to your agreed upon terms.

Day-30 If no payment has been received, call the customer and send a past-due notice. 

Day-45 Another past-notice and a collection call. They need to know that you are watching your aging and that they are on the wrong side of it.

Day-60 A final call and a written demand for payment. This demand should inform them that all accounts over 60 days are subject to outside collection activity. 

I should pause for a second here. Some of you will say, this account is not 60 days past due, it’s only thirty. I have to disagree. The account is past-due the moment you ship or provide the service. It’s a problem account until the day it is paid, and in many cases until the day the check clears your bank.

Day-75-80 A ten-day demand letter should be sent informing your customer that unless you hear from them in ten days, this account will go to collection. The key here is that when the deadline passes, you must take action!  As I said before, when you make that call and get the “tones of death” (the number your are trying to reach has been disconnected…….) it’s too late. Write it off to experience.  Someone  once said,  “Experience is what you get, when you don’t get what you wanted.”  Making that call is just like looking out the window and seeing that your grass is a foot high!


If the phone is disconnected, it’s not getting collected.

If you have to skip trace it, it’s just too late to place it.

You can quote me on that!

Leave a Reply

Your email address will not be published. Required fields are marked *