A regular Credit Review will allow you to stay in touch with reality, with all your customers
An effective way to reduce bad debt is to conduct a credit review of ALL your customer on a regular basis. This will allow you to make informed decisions about the credit worthiness of each customer thus reducing overdue debt and increasing cash flow.
Step 1. Print and / or View Accounts Receivable Aged Balances
Depending on your Accounting software settings you should be able to select, view and print any accounts receivable over 30 days. Select, sort and print (or PDF / export into a spreadsheet for email distribution for an eco friendly option) as many copies as required.
Step 2. Distribute to Relevant Staff
Ideally you will able to sort overdue customers by department, salesperson, branch or other category as required, and distribute accordingly.
Step 3. Highlight Emerging Problems
Compare the new reports with previous ones and note any emerging problems, as well as non-payment of previously highlighted problems. Each department / area of responsibility need to document and report on progress, action, communication and recommendation for resolution, in accord with the Debt Collection Policy.
Step 4. Contact Customers
Start contacting customers. Over time you will build up knowledge of who to call and when, so it pays to document this information. For example the owner / director of company ABC makes field trips on a Thursday afternoon (in other words plays golf). No point in trying to call him then, but you might want to bump into him on the 19th hole?!
Use your Debt Collection Policy as a guide and also refer Debt Collection by Telephone
Step 5. Maintain Contact Log
Write it all down. If your accounting package does not have the facility to record communications with your customers, then use a Contact Management System (even a spreadsheet will do) that all staff can access to record the method of contact, date of contact, who was contacted, what information was gained and the outcome. Then refer to this information before any further contact, and credit review.
Step 6. Review Accounts with Sales and Accounts Receivable Staff
The response from the customer will either result in payment of the overdue amount or require a change to the customer’s credit status. Any change to the Customers credit status must be communicated to all staff AND to the Customer.