Wait too long, and your chances of recovery plummet. Move too quickly, and you might damage customer relationships. This decision impacts both your bottom line and company reputation. Here’s a practical guide to help you navigate this challenging aspect of financial management.
A Checklist for CFOs to Know When to Send an Account to Collections
While aging reports provide a starting point, the most successful CFOs look beyond days past due to spot trouble before it’s too late. Use this comprehensive checklist to identify accounts that warrant immediate escalation to professional collections, regardless of age:
Communication Patterns
- Customer has gone completely dark after previously being responsive
- Customer repeatedly promises payment but fails to follow through (two or more broken promises)
- Contact person suddenly becomes “unavailable” or has “left the company”
- Customer becomes defensive or hostile when discussing the outstanding balance
- Emails regarding payment are consistently ignored while other communication continues
Payment Behaviors
- Payment patterns suddenly change (like paying small invoices but ignoring large ones)
- Partial payments arrive without explanation or a timeline for the remainder
- Customer begins disputing previously accepted charges or services
- Payment method changes to slower methods (e.g., switching from ACH to checks)
- Check payments begin arriving without a signature or with errors requiring resubmission
- Customer requests unusual documentation or creates procedural hurdles not previously required
Financial Warning Signs
- Customer’s customers are experiencing payment delays (industry domino effect)
- Public records show tax liens, judgments, or other collection actions against the customer
- Customer requests extended payment terms after order fulfillment (changing agreed terms)
- Industry news suggests financial distress in the customer sector or a company specifically
- Customer’s credit score has declined significantly in recent monitoring
- Customer has begun selling assets or closing locations
Internal Red Flags
- Customer places new orders while ignoring payment on previous deliveries
- Customer requests rush delivery with promises of immediate payment that don’t materialize
- Multiple departments report issues with the customer (not just accounting)
- AP contact consistently blames “the system” or “approval delays” with changing explanations
- Customer attempts to circumvent your established credit procedures
Timeline Accelerators
- Amount owed exceeds 5% of your monthly revenue (cash flow impact justifies faster action)
- Customer is new with limited payment history (less than one year of relationship)
- Legal time limitations approach (statutes of limitation or industry-specific deadlines)
- Customer shows signs of preparing for bankruptcy or major restructuring
- Seasonal factors indicate payment will become more difficult if delayed (like retail after the holiday season)
- Customer relationship is already damaged for other reasons
Any three or more checks on this list warrant immediate consideration for professional collections, regardless of the account’s age. For accounts with five or more indicators, escalation should be automatic and immediate.
How to Effectively Partner with a Collections Agency
Building strong relationships with collection agencies is more than just sending them overdue accounts. The best partnerships are all about sharing information regularly. Your team can provide helpful customer insights while the agency can offer updates on their performance.
You should also have regular check-ins to talk about how things are going compared to what you expected, ensure compliance, and make any necessary adjustments based on what’s working or not.
The goal is to move the relationship from just a transaction to a real collaboration, where the agency offers insights on new challenges and effective strategies.
When done right, outside agencies can feel like a natural part of your team instead of just another vendor.
If you’re looking for more tailored advice on how to implement these ideas, reach out to our debt recovery experts at Capital Recovery. We offer customized recovery solutions that improve your collection efforts and boost your recovery.