Commercial Collection Agency Association
Commercial Law League of America
The Shrinking Dollar: What Happens When There is a Delay in Collection Accounts.
Current Accounts … $1.00
3 Months Overdue … $0.73
6 Months Overdue … $0.50
1 year Overdue … $0.25
2 years Overdue … $0.10
Cash Flow is the engine that drives businesses large and small. Delinquent accounts are the brakes that bring companies to a screeching halt. The economic exigencies of recent years have pushed many companies to extend the time they will permit an accounts receivable to age prior to instituting formal collection efforts. Based on a survey of members of the Commercial Collection Agency Association of the Commercial Law League of American (CCAA), completed several years ago, this “loosening” of payment requirements may be severely impacting on companies’ cash flow and bottom line. According to the survey results, the probability of full collection on a delinquent account drops dramatically with the length of delinquency. For example, even after only three months past due, the probability is that you will collect only about $0.73 of each dollar delinquent. After six months, only about $0.50 of every dollar will be collected. And after one year, the best expectation is that only about $0.25 of every delinquent dollar will be collected. For many businesses, staff limitations and workload demands in the billing department cause cash recoveries to be limited. This results in the inability to increase productivity and intensify proper follow-up on higher balance delinquent accounts. It also takes valuable time away from follow-up on current receivables that then causes these accounts to age and reduce their collectability. In fact, it creates a vicious cycle that is nearly impossible for the business to break. With limited time and resources, turnover in the department, and limited collection based training, it easy to see why cash flow lags. A typical business obtains 75% to 90% of its dollar revenues within the first 60 days after billing. However, the remaining 10% to 25% comes much later. And this money is relatively more at risk. A greater proportion of a businesses time and effort is spent on realizing dollars from this segment with much less success. The success in collecting this segment usually determines profitability. The results of the survey clearly demonstrate the critical importance of taking positive action when an accounts receivable ages past its due date. Today’s competitive economy requires that companies maintain a healthy cash flow with the ability to adapt to constantly changing market conditions. This is true whether you are in the printing industry or a company in Silicon Valley. Delinquent accounts, if they are permitted to age, can wreak havoc on a company’s liquidity, as well as tie up management and staff time that could be put to far better use. Companies must take a hard line on past due receivables, and turn to professional help when internal efforts do not prove successful. The bottom-line is, do not wait.
