The ventures accounts payable processing begins with the receipt of a customers purchase order authorization after they have received goods/services.
The account receivables factoring policy need not be rigid. You can make exceptions, for whatever reason. But, it is easier and better business when you have a policy to make exceptions from than when you are just making it up as you goes along.
Thus far, I have been writing about the written policy that you discuss with your customers ahead of time. There is another written policy which customers do not see. This one addresses those customers who are not willing to do business with you the way the basic policy states. This second policy lets your employees know how much they can deviate from the ideal policy.
In many businesses, it is essential that customers sign the policy, in addition to discussing it with them. Signing is required wherever there is a history of misinterpreting the policy or a history of nonpayment. Other than these situations, it isn't enough that you have a written policy. You explain it prior to doing business, and, wherever feasible. The customer also gets a copy of it. Another issue is the effect of your new payment policy on established customers as compared to the new ones. New customers may or may not agree with your new policy for payment, but they have no basis for comparing it with your previous policy. But many of your current customers, some of whom have been paying you in accordance with their policy, will be deeply unhappy with the change.
If you think about it, this situation is about treating other people the way you would want to be treated. You'd want to know, in advance, what the rules of the game are and where your money is involved. You wouldn't want to be surprised. You wouldn't want one side to assume one conclusion if the other party could reasonably assume the opposite. That's why everything that can be spelled out must be. You certainly don't want to preside over a business where the payment policy depends on who you talk to, which is the case in far too many businesses today.
Collection Decisions You begin with a decision about how long you will work on unpaid accounts and a policy for what to do during that time. I suggest that you make a decision to work on most accounts no longer than four months. Exceptions need management approval.
At the four-month point, uncollected accounts will either be written-off, sued in Small Claims, Municipal or Superior court, handled by an attorney, turned over to a collection agency or have a pre-collection letter series used on them. The discipline needed to bite the bullet at an early stage of delinquency is precisely what it takes to give an incentive to handle accounts systematically during the first four months. During that time, the key collection tool is the telephone. It is 10 times more productive than the most brilliantly written dunning message, because the phone provides feedback - it is a two-way communication.
The first phone call should occur no later than 10 days after sending the second statement. If the first statement has been ignored, there's no benefit to you in waiting another month to take action. You want to know where matters stand, and the sooner the better. Incidentally, there is no reason you must have a 30-day interval between statements, although that tradition has carried over from pre-computer days. Businesses and industries that have a high level of delinquent accounts often bill twice a month, which is far more effective than once a month.
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