Even the most seasoned collections professionals experience issues with nonpayment. At Armstrong Transport Group, we understand that when coupled with a recession caused by a pandemic, the need to collect becomes even greater. Not staying on top of collections will affect an organization's cash flow. The older an invoice gets, the less likely it is the debtor will pay.
Managing your collection efforts will help your organization's cash flow. The sooner you are able to collect, the less time your organization incurs interest charges on loans/lines of credit. It can also prevent a downturn in cash flow, maxing out customers credit limits, borrowing from loans/lines of credit and the inability to pay creditors (including payroll).
This article will explain several best practices to minimize these issues. We will cover what can be done when onboarding the customer, all the way through cash receipt or third-party collection submission.
New customer set up and credit analysis occurs daily at logistics companies. Credit departments monitor and approve credit on over thousands of customers annually. Monitoring creditworthiness and staying on top of collections is imperative to the success of logistics companies.
There are numerous third-party resources available for credit analysis. From insurance agencies like Atradius, Euler Hermes, and Coface, to credit reporting agencies like Equifax, Experian, Ansonia and Dun and Bradstreet, there are numerous ways to stay up-to-date on the market.
A best practice for all collections teams is to maintain regular open communication with customers. If payment commitments begin to slip, the best first step is to get on the phone with the customer and learn more. Talking to several different people at the business can help the credit team determine if the story is consistent. The goal is to find out what is really going on with your customer and determine if there is a problem.
At Armstrong, we break down our collections into 4 Tiers. This allows more attention and follow-up to be given to an account the longer it goes unpaid.
By doing so, Armstrong has experienced the following results:
Initial reminder calls & emails
Resend all overdue invoice copies
Follow up calls & emails
Resend Open Balance Report
Escalated calls & emails to supervisor
Follow up calls & emails to supervisor
Auxiliary research for new contacts
Calls & emails to new contacts
1st demand letter & email
Skip trace investigation
Calls & emails to new contacts
Customer credit hold
Follow up calls & emails to all contacts found
2nd demand letter & email
This demand letter, sent by mail (with signed delivery confirmation), provides proof that you made the effort. The intention is to expedite a successful outcome and avoid costly litigation.
Continued skip trace investigation
Persistent calls & emails to all contacts
Final Notice/Legal Letter & email
This letter, preferably sent from your lawyer or executive via certified mail (with return receipt requested), makes the possibility of a lawsuit “real” for the other company. Perhaps for the first time, the other party will have to weigh the possible consequences of not complying with the demand.
Submission of debtor to collections agency
File with your AR/credit insurance provider
If your organization does not insure your receivables, partner with a third-party collection agency. The ideal collection agency partner will be one that specializes in your industry and will report to the credit bureaus. Collection agencies deploy multiple strategies to retrieve funds, such as:
In addition to the above steps, you may want to encourage all customers to pay electronically. Payments made via ACH or wire transfers eliminate the “check is in the mail' excuse. It's easy to track with little to no turnaround time for receipt. Another approach is to waive credit card fees to accommodate business that are working remotely and have limited access to checks.
Communication is the cornerstone of any good collections effort. From the time a customer gets set up, the tone of the relationship is being set. At Armstrong, we have always used a soft collections approach in conjunction with insuring our receivables. Through these uncertain times, stay connected with your client and offer flexibility when possible.
Recognized as a 2020 top 25 freight brokerage by Transport Topics, Armstrong has the credibility, established reputation and financial stability your customers and carriers require.