The Most Expensive Expression in Commercial Debt Collection

In the context of debt collection, this phrase can cost you a fortune. It’s part of a common delay tactic used to acquire additional weeks or months, typically after the agreed-upon due date has passed. And if you’re involved in commercial debt collection at any level, you’ve likely given in to the old saying that patience is a virtue and waited a little longer than you wanted to. After all, it’s normal to want to be agreeable with clients.

What is the damage in waiting a little longer? The answer is far more than you ever imagined. As your debts age, the statistical probability of collection decreases by the day. Once you’ve joined the list of creditors willing to wait, it will likely cost you a little more time (which tends to turn into a lot more time).

Aged debt is the opposite of exquisite wines and cheeses, which tend to increase in value over time. The passage of time continuously and rapidly diminishes the collectability of a debt, thereby decreasing its value to you.

According to a survey conducted by the Commercial Collection Agency Association of the Commercial Law League of America, 30 days past due debt has already lost more than 10 percent of its initial recoverability value. The likelihood of loss increases to 18.7 percent after 60 days. And after 90 days, your probability of ever collecting has decreased by nearly a third.

What Does this Imply for You?

If your standard procedure is to turn over a debtor to a collection agency 90 or more days after the due date, you are waiting too long and are likely already paying for it in bad debt write-offs.

If, like many businesses, you wait until six months after the due date to attempt collection; you can expect to lose approximately half of the debt due to decreased collectability.

The next time a debtor asks you to “be patient for a few more weeks” or “just give me until the end of the following month,” keep in mind what this request means regarding the potential impact on your business and the laws of probability. In effect, you are being asked to jeopardize the debt’s collectability by at least 10 percent and potentially much more if the debt is already old.

The solution is to institute a firm policy on past-due receivables and make it clear to customers from the start of the business relationship that there is no wiggle room. Various accounting software tools can send automatic payment reminders, including reminders of your delinquent accounts policy and its consequences. Make your first call promptly, within a day or two of the due date, and obtain a promise to pay by a specific date in the near future. If payment is late, issue a stern warning of the repercussions and demand a new promise to pay by a short-term deadline. Three strikes mean that you must comply with your warning, which may include turning the account over to a collection agency.

Fewer accounts will need to be written off in the future if you adhere more rigorously to your debt collection policy. It is a sound business practice that can save you thousands of dollars in bad debt.

Don’t wait any longer; submit your collection today!