When should an account be sent to collections?
The vast majority of business owners and managers find themselves dealing with delinquent customer or client accounts from time-to-time. Indeed, more than a few businesses are sitting on a good many of past-due invoices. How do you know when it is time for the account to be sent to collections?
The reality is that uncollected invoices represent a drain on the cash flow of a business enterprise. There are specific steps that a business must take when an invoice becomes delinquent.
Common Invoice Terms
There are two primary factors that govern the payment terms on an invoice. First, the terms of an invoice to a customer or client are dictated by industry practices. Second, invoice terms are governed more specifically by the agreement with a client or customer. As an aside, some leeway tends to be granted informally to a customer or client that has an established relationship with a business.
There are common invoice payment terms found across all industries in the United States. The most common in many industries calls for payment upon receipt of the invoice. The next most frequently utilized invoice term requires payment in 30 days. Two other terms in some industries is payment set at the 60 or 90 day mark.
In some cases, a business requires a partial payment upfront, with the balance due after delivery of goods or services according to the terms and conditions of an invoice.
When to Start Collections
The general practice for a business should be to start the collection process directly after an invoice becomes delinquent. There can be exceptions to this general practice in isolated circumstances.
Taking a proactive approach to delinquent accounts is beneficial in a number of ways. First, research reveals that a delinquent account is more likely to be paid when collection efforts start immediately. Second, the initiation of quick collection sends a message to other customers or clients that invoices must be paid on time. Finally, proactive collection practices benefit the bottom line of business by lessening the number of delinquent accounts in the short term.
