Whether your business is new or long-established, one of the most vital tasks your business will undertake is collecting money owed. A business must excel at collecting the accounts receivable in order to stay in business and grow. In this article, we will discuss an important collection tool: the collection timeline.
If your business already has a dedicated accounts receivable department, you may have an established protocol for collecting accounts based on the age of the receivable. The timeline is also known as the escalation period and gives accounts receivable managers a checklist for collecting customer accounts.
If you do not already have a protocol in place, a company’s senior management should create or approve a collection timeline. The timeline should set out specific age limits for various types of delinquent accounts. As the accounts reach milestones on the timeline, collection efforts should escalate accordingly. Depending on your management structure, it may be a good idea to give accounts receivable managers some flexibility to collect accounts within the parameters of a company’s collection timeline, but senior management should still review collection reports periodically to ensure the accounts are being collected in a timely manner.
An alternative or companion mechanism for some companies is to develop a system of prioritizing accounts for collection. For instance, a business may elect to prioritize debts by size, segment, or both. Businesses that provide services to government agencies may find the agency to be credit-worthy, but historically slow to pay due to the agency’s payables flow. In that case, it is a better use of a business’s accounts receivable resources to focus collection efforts on private accounts, placing a higher priority on the largest private accounts.
At Scolieri Law Group, P.C., we can help you structure or reorganize your business from bottom to top, and help answer the tough questions along the way. Our experienced business law attorneys are here to provide legal assistance in all aspects of starting or growing your business. Contact us today at (412)765-0546 or firstname.lastname@example.org.