Beware of This Revenue Leak Hiding in Your Payments Process

It happens to every business at some point or another. A customer stops paying, the in-house accounting team sends one reminder after another, and seemingly overnight, that account is three months past due.

While that single account may seem like no big deal, it quickly adds up when the same scenario occurs across a multitude of a business’s accounts.

According to the American Bureau of Collections, about 13% of a business’s accounts are delinquent at any given time. To make matters worse, the outstanding invoices are not the only factor driving costs for the company. Now, personnel are stuck spending hours chasing payment; time that could otherwise be spent growing the company.

I’ve witnessed this scenario across hundreds of businesses over the past 15 years, from medical offices to utility companies. The common theme is that the businesses that recover the most revenue are those that stop attempting to tackle the problem in-house.

Don’t make the mistake of waiting

A major pitfall I’ve come to recognize as a detrimental trend is stalling. Founders, especially at small businesses, worry about damaging customer relationships. Others assume delinquent accounts will eventually pay. Some have even told me that they fear sending delinquent accounts to collections is too confrontational.

Wrong, wrong, and wrong.

If done properly and empathetically, the collections process should have no impact on your brand’s reputation and relationships with clients. On the contrary, from what I’ve seen in my time with Ardent—the consumer and commercial collections division of PCA Global Ventures — a new voice can often be an opportunity to resolve unresolved disputes and get a business relationship back on track when previous communication channels have broken down. Stalling and relying on internal multi-skilled teams often leads to aging receivables, lower recovery rates and, worst of all, cash flow strain.

If you leave this article taking only one piece of advice, it’s this: do not wait to act on delinquent accounts lest you risk your odds of recovering those profits. When the signs arise, recognize that it’s time to turn to trusted professionals. The unappetizing alternative is to write off the loss and accept defeat.

You’re always paying someone to collect

When I see businesses handling their collections in-house, it typically involves the founder, general bookkeepers or customer service and sales representatives doing their best to make calls and mail invoices while also juggling several other responsibilities.

As convenient as it may seem, none of these roles are debt collectors. More often than not, they lack the training and the tenacity to effectively collect on funds in a customer-friendly and compliant manner. The outcome? Minimal engagement from debtors, poorly negotiated repayment terms and hours upon hours wasted as your team is tied up with documenting conversations that lead nowhere.

The worst part is that thousands of companies are paying their team members to do this, despite the unimpressive results. Strategic founders see this for what it is: an invisible labor cost. Rather than allowing it to worsen, they act quickly to find a collection and recovery partner that can bridge the gap quickly and effectively, without damaging their reputation or relationships.

Professional collectors aren’t relying on aggressive tactics

Case in point, my team and I once worked with an auto lender that was handling its collections in-house. At the start, they didn’t see anything wrong with their approach, nor with the empathetic individuals they had assigned to handle the workload. However, after auditing their circumstances, I quickly realized that their outreach was sporadic, communication channels and payment options were severely limited and their level of compliance and training had room for improvement.

Within six months of working with them, my team had more than doubled the company’s net recovery rate. To do this, we opted to strategically overhaul the entire collections process and implemented an empathy-based, multi-channel collections approach with significant investment in self-service and digital capability. Our relationship with this client spans many years and continues to yield significant improvements in performance, not only in cash recoveries but also in compliance and service levels, which the organization is now able to offer its customers when they need it most.

I’ve shared this story to debunk the common assumption that professional collectors are only successful by aggressively harassing debtors. In reality, that’s far from the truth; we’re simply more equipped to handle these delicate circumstances and are often able to instantly deploy specialized technologies and processes that are proven to deliver.

Catch the cash-flow crisis before it’s too late

When it comes to delinquent accounts, time is rarely on your side. The longer an invoice sits unpaid, the lower your chances of recovering it in full.

Once overdue accounts begin consuming your team’s time, distracting leadership from growth initiatives, or putting pressure on cash flow, it’s time to bring in a trusted collection and recovery partner that has the expertise, systems and compliance knowledge.

Wait too long, and what started as a handful of overdue invoices can snowball into thousands, or even millions of dollars sitting in delinquency purgatory. For businesses of any size, that’s capital that can’t be reinvested in hiring, innovation, expansion or serving customers. Left unchecked, it can cripple even the healthiest organizations.

Remember, the businesses that consistently outperform their peers aren’t the ones that never experience delinquent accounts. They are the ones that recognize the warning signs early, act decisively and know exactly when to put the right experts to work protecting both their cash flow and their future.

It happens to every business at some point or another. A customer stops paying, the in-house accounting team sends one reminder after another, and seemingly overnight, that account is three months past due.

While that single account may seem like no big deal, it quickly adds up when the same scenario occurs across a multitude of a business’s accounts.

According to the American Bureau of Collections, about 13% of a business’s accounts are delinquent at any given time. To make matters worse, the outstanding invoices are not the only factor driving costs for the company. Now, personnel are stuck spending hours chasing payment; time that could otherwise be spent growing the company.