Uncollected dollars nibble away at your company’s cash flow and profitability. Over time, they can threaten its growth and sustainability as well. The solution is to adopt a proactive approach to dealing with past due accounts.
A survey by the Commercial Collection Agency Association (CCAA) revealed that, after three months, the probability of fully collecting on a delinquent commercial (B2B) account dropped dramatically with the length of delinquency.
At just 90 days past due, the likelihood of a full collection drops to 73%. After 6 months, it drops to 50%. After 1 year, 25%. And after 2 years, it’s a meager 10.5%.
Why this dramatic drop? There could be a number of reasons, but the most common is that the creditor waited too long before placing the account with a professional collection agency.
When an account reaches 90 days past due — often sooner, depending upon the amount of internal collection effort– the creditor has lost leverage and it’s time for third-party intervention.
By the time an account is 90 days delinquent, if the debtor actually intends to pay, you should at least have in hand an agreed on a repayment schedule. If you don’t, waiting any longer is a mistake. It increases the likelihood that the debtor will go out of business, file bankruptcy, or disappear.
So, how do you decide when it’s time to place the account with a collection agency?
Based on the CCAA’s survey, placement should occur no later than 90 days past due.