As a community service, the Law Offices of Karen M. Riggio, LLC publishes a complimentary e-newsletter designed for business owners and independent contractors. Each month, we offer valuable tips and practical, real life answers to today's common contract issues and collection problems. Feel free to e-mail us your suggestions for future articles.

Karen M. Riggio

Do you ever wonder why past due receivables keep creeping up? Managing accounts receivable is one of the most challenging responsibilities, and is the key to your business survival and growth.

Your cash flow is your business life line. Bad debts and slow collections can be a major factor in a business failure. Too often, I see the credit and collection process controlled by customers. Some customers love to use your money... an unpaid accounts receivable is like getting an interest-free loan. What's the cost of this loan to you? The return you could obtain if you had the cash and could invest in future growth or use the money to pay off debts.

The foundation for good accounts receivable management is systemizing your credit and collection policies. Here are a few steps to improving both:

1. Establish written credit policies that cover terms of sale, credit approval, credit limits, new accounts, change in credit status, and authority to override your credit policy.



2. Investigate credit applications carefully. Obtain at least 3 credit references and review them thoroughly. Once credit limits and terms are established, enforce them.



3. Collection starts with timely invoices. Prompt billing is essential to accounts receivable turnover.



4. Routinely review your customer accounts and their status. Observe trends on consistently past due accounts. Can you identify a common factor to watch for in new accounts?



5. Establish a systematic collection program to ensure that regular, persistent follow-up calls and letters begin soon after maturity. The best way to keep a receivable out of the 90-day column is to keep it out of the 60-day column.



6. After 120 days, pursue the unpaid balance with an attorney who specializes in debt collection.

Treat your accounts receivable as a business investment. By standardizing your collections procedures, you will protect your bottom line, improve your cash flow, and get off the "collections treadmill".