A sale is not a sale until the funds are collected

By Andy Ersek*

IIEXT to poor management, lack Ilof cash flow is a leading cause of business failure. To quote another truism: "No one ever goes broke, they just run out of money. "

Sources of funds are sales for cash, bank financing and collection of receivables. Next to inventory, accounts receivable is the most volatile asset on the balance sheet.

Managing receivables is vital to the survival of any company. Anytime a receivable becomes past due, its collectibility diminishes drastically. After 90 days, it is highly questionable if the account will ever be collected.

The following steps should be helpful in collecting delinquent amounts:

(1) Open a line of communications by making a personal call or visit. Dunning letters too often end up in the waste basket.

(2) Becertain thattheamo.unt owed is correct, that the debtor has been sent documentation and there are no claims. or shortages.

(3) Note all statements made with the debtor: time, place, with whom the contact was made, his or her position with the company.

(4) Obtain some form of commitment, even itif is a small pay- ment or merely a call back with information on a future payment. A definite time should be agreed upon.

(5) Followupwhenthetimecomes. This is very important. The debtor then learns that you mean business, and you will not be put off with the other creditors.

(6) Do not back anyone into a corner by making threats if payment is not forthcoming. This will only strengthen resistance on the part of someone already in financial difficulty. Offer a solution that you believe the debtor can live with. An extended payment schedule is much preferred to a forced liquidation.

(7) Avoid litigation at all cost. With attorney fees at $100 to $140 per hour, it does not take long to use up a large part of the debt in legal fees.

(E) With the cost of money at l4Vo to l6qo and high legal fees, it is often better to offer a discount for prompt settlement rather than wait for lengthy legal action.

(9) When a settlement is reached outside of court, be sure that all promises are fulfilled before legal action is dropped. Debtors sometimes make commitments they cannot or will not honor.

There are many other techniques that can be used in collecting funds, however the most important is to be persistent, and follow up. The squeaky wheel does get oiled first.