Strategies on Collection of Debts
As a small business owner, have you ever met difficulties in collecting your debt? Finding the best strategies about debt collection is crucial for you to increase the effectiveness and efficiency of the collection staff. As the effort you put in to collect your debt increases, the funds that you can collect should increase too. Collecting your debts is extremely important for you to ensure the financial health of your business. This means that you need to know the due dates of the invoices and you will not be able to achieve this without proper accounting (Also see Basics of Cost Accounting) records. If you face any difficulty in managing your debts, consider hiring an accounting services Johor Bahru and let the professionals help you.
Listed below are some helpful strategies of collection of debts:
– Review the company’s policy about credit granting
The process of collection of debts starts from deciding how easily a company would grant credits to its clients. The company’s management (Also see Inventory Management Strategies for Businesses) should involve in making such a decision and discuss the effect of that decision on the company’s investment in its accounts receivable as well as its bad debt.
– Handover the collection task to a debt collection agency
Business owners should determine a point where the company will hand over the invoices to a debt collection agency. They should set a clear definition of when they should do so, for example, after 90 days or after they have contacted their clients for thrice. The critical thing to note is that business owners should not drag the handover as this will only cause the receivables to become stale and thus become more difficult for the company to collect them.
– Identify collection tools that the company can use
This is part of the strategies on the collection of debts. As an instance, business owners should think whether they will let their companies accept changing overdue accounts receivables into loans and whether they will accept returned merchandise. They should make these decisions based on the rate that their products experience a decrease in value, the requirement for working capital of the company, and so on.
– Prioritise some collections
Typically, business owners would assign the collection staff to collect payments for the largest invoices (Also see How Do Purchase Orders and Invoices Differ from Each Other?) as they are efficient in handling such tasks. Another choice that business owners have is to hire a credit analysis firm to identify the clients whose financial health is in the best condition. This helps the company to pay the most attention to the invoices that such companies should pay them.
Lastly, business owners should make sure that they have recorded all the decisions that they have made concerning the issues above in writing. Then, they should also study the strategies that they have recorded regularly to see if they need to make any modifications to them. Conditions that may cause a change in the strategies applied include changes in economic trends and others.