5 Accounts Receivable & Collection Statistics That Should Scare You

Eugene Vyborov | Thursday, Mar 30th 2017
5 Accounts Receivable & Collection Statistics That Should Scare You

If you are in the business of selling products or services on credit, you effectively have two businesses – collections being the second one. That does not look like a problematic setup until you consider that most American businesses aren’t great at managing collections. Here are some statistics from the 2016 payment practices study by Atradius.

  1. On average, companies write off 1.5% of their receivables as bad debt. For a $50M company, that means a $750K expense every year!
  2. 93% of businesses experience late payments from customers.
  3. 47% of credit sales are paid late.
  4. Average payment terms are 27 days, but actual payment period averages 34 days.
  5. Survey participants see maintaining cash flow levels as a key challenge that is critical to business profitability.

Survey results leave no room for doubt: accounts receivable are costing your company money and creating a considerable workload for your team. High DSO and aging receivables have another expensive side effect: because of collection delays, the company has to resort to bank loans to maintain working capital.

What can be done to remedy the situation? Here are some ideas to consider.

Re-assess your credit management.

A company’s credit policy should be a strategic extension of its mission and business plan – not an afterthought! Before credit is offered to a new client, your company has a window of opportunity. If used correctly, it can position your team to make better decisions and mitigate the risk associated with bad debt. Re-visit the tools you use for pre-screening clients, including credit reports, financial statements, and reference checks. Consider which of those pre-screening tools have yielded results, and which ones have missed red flags in the past and could be improved.

Have a SOP for reviewing receivables and following up with customers.

Take a hard look at what your company’s credit terms state, and compare them with the actual practices. Many companies have a boilerplate “pay within 30 days” set of terms when in reality the accounting or the collections team does not even begin to follow up on the outstanding account until it hits 60 days on the aging. In effect, those companies have a 60 day credit policy! After all, your credit policy is only as good as what you are willing and able to enforce.

Optimize dispute management.

Resolving customer disputes is arguably one of the most difficult parts of managing receivables and collections. Dispute resolution requires a complex thought process, consistent follow-through, and ability to have challenging conversations. Many companies find that their staff does not have sufficient time or training to do this critical task well. Consider the workload of your team, and offer specialized training for those who wish to maximize their effectiveness in this important role.

Automate as much as possible.

Take a critical look at your current collections and receivable management workflow. Does it have obvious bottlenecks? Does your staff scramble at predictable times every month, leaving them little time to analyze trends or talk to clients? If so, consider automating routine portions of the process to free up their time for higher-value activities. Modern AR and collection automation tools integrate seamlessly into your workflow, allow room for customization, and put your team in the driver’s seat. If you are curious about what AR automation could do for your company, give YayPay a call!