Accounts Receivables

The Importance Of Having A Business Debt Recovery Procedure

Michael Gerber in his book, The EMyth Revisited, talked about the importance of business processes (amongst other things). Any business that is well run and operating efficiently will have policies and procedures in place for all of its business operations - including a business debt recovery procedure.

Positive cash flow is as essential to business as sales and it can only be achieved if accounts receivables are properly managed and collected when they are due. Business debt collection is critical to the survival of every company.Each business will have its own business debt recovery timeline that will be dependent on the nature of the goods or services sold and the type of client customer. However, there will be a number of steps that will be relevant to all businesses.

Although it comes a long way before business debt collection, business credit control is a vital part of the overall finance policy for any business. It is essential that credit terms are clear and enforced in a timely manner, in all cases. By doing this it is possible for a business to avoid a lot of business debt collection problems.

Once an account receivable becomes overdue, the creditor business has a choice of dealing with the matter in house or passing it over to a business debt collection agency. The pros and cons of these alternative actions need to be weighed up and written into the business debt recovery procedure for the business. It may be that the company will deal with debtors until they are 60 days overdue and then the matter is passed to an agency, such as (removed), for recovery. Other companies may choose to pass debts over a certain threshold straight to collection agencies. This is a strategic decision that must be made by the financial controller for the company.

Depending on the cash needs of the company one of a number of business debt solutions may be written into the business debt recovery timeline. The company may consider factoring invoices issued to certain clients; some accounts receivable may be used as security to raise lower cost borrowings; some accounts receivable will be sold in a debt portfolio.

If the creditor company is experiencing extreme cash shortages it may consider looking at it's own business liabilities - the amounts it owes to others - and seeking business debt consolidation assistance in order that it can reduce its monthly outgoings to a more manageable level.A business debt recovery timeline may run for days or months depending on the number of steps included. If business bad debts are sold to a business debt collections agency early in the collections process, the timeline will be short for the creditor company as all interest in the debt will be passed over to the collection company.

For those companies who undertake a lot of the collection effort in house, the timeline will be long and intricate. Steps included must stay within the law - which is complex - to ensure no regulations regarding collection protocols are breached.Having clear business policies and procedures in place, including a business debt recovery timeline will make it easier for the administrators of those processes to know what needs to be done and when. It also assists finance companies, from whom help may be sought, to be better placed to offer quick solutions to immediate cash problems.