The Intelligent Accounts Receivable Blog

Here is how revenue is draining away to collection agencies

Posted by Matt Shapiro on Sep 12, 2017 12:54:06 PM
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A common rule of thumb for continuous business success is continuous innovation. The first thing that usually pops into minds is product and/or service innovation; however, innovation benefiting companies comes in many forms. Another key way to innovate, dramatically impacting revenue and the ability to grow, is system and process updates.

Account receivables management has been the same process for many years without any innovation. The same manual, expensive, inefficient methods have severe cash flow limitations. Companies waste many resources and burn tremendous amounts of cash by using old tools. If an account is delinquent, companies will repeatedly mail bills demanding payment in full, send additional delinquency notification letters, and call nonstop. Some companies have innovated slightly to at least send emails.

Keep in mind that there are a 169 billion dollars in delinquent accounts written off, then sold or managed by collection agencies. After burning up company resources, more company revenue is lost by sending it to collection agencies. If a collection agency buys the debt, it's usually for $0.05-$0.10 cents on the dollar. If they work the debt for you, they charge between 20-50% commission, then toss back the uncollected debt to be dealt with, again.

The lack of innovation has created an entire industry from your lost revenue. Collection agencies are roughly an 11 billion dollar industry and growing every year. We have heard over and over that "losses are a part of doing business." Or, "we've been using the same process for years that seems to work." Why is this normal or "they way things are done"? Do you want to reclaim your lost revenue, or do you want to keep giving it to another company?

If you have been working with collection agencies for years, losing between 20-50% of your revenue on past-due accounts has been accepted. What if you could reduce the loss percentage by at least 5%? How much would your cash flow grow?

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A few tricks to reduce the amount of unpaid bills feeding collection agencies:

1. The most obvious is to avoid past due accounts, but that's not realistic. It's 11 billion dollars (well, 169 billion dollars) unrealistic. Long billing cycles and bill clarity are major contributors to delinquent accounts. Make sure bills are immediately sent to the correct person while the service is still fresh in memory. Send clear bills to reduce confusion.

2. Optimize your collection process by having an Accounts Receivable process in place to handle payments, and it's best to have them available 24/7. People need to pay their bills easily when it's convenient for them. Many businesses use call-centers that are internal, external call-center services, or a combination. The downside is operational costs are significantly increased.

3. Explore Intelligent Accounts Receivable tools to put your Accounts Receivable plan into action. Automization and self-serve capabilities are imperative when reviewing solutions. Most Accounts Receivable environments are very manual and fragmented. The more automated processes, the better. Operation costs will be reduced while increasing cash flow.

Learn more about how you can improve your accounts receivable with your A/R guide

Topics: accounts receivable, collection agencies