Some overdue accounts eventually get paid.
The customer realizes he or she forgot to send a check, and then quickly rectifies the situation. Over time, however, inactive accounts become dormant. They’re certainly frustrating on an individual basis, but how do they affect your business as a whole?
Picture a ticking clock next to each dormant account on your books.
Have you ever waited for a check to arrive in the mail? You’re frustrated and angry each evening when you find only bills and advertisements in your mailbox. As time passes, you begin to lose faith that the check will ever arrive at all.
The same thing happens to businesses. As accounts get older, the customer becomes less and less likely to pay. You probably don’t pay much attention to each individual account, but long overdue invoices stack up.
As your business accumulates more and more dormant accounts, your cash flow becomes far less reliable. You don’t have the funds to upgrade equipment, hire more employees, or invest in product development.
Essentially, dormant accounts slow your business to a halt. That’s why you need to think of a ticking clock when you realize that an account has reached 30 days overdue.
If you already have dormant accounts on the books, you might have to give up on them. When you continue to spend your company’s resources on collecting a seriously stagnant account, you risk interrupting your cash flow even further. Since you don’t have a money tree in your backyard, you’ll benefit more from focusing your efforts elsewhere.
This doesn’t mean you should halt all collection efforts. You can continue collection attempts on 30-, 60-, and even 180-day accounts, but if a customer hasn’t paid you in six years, you’re probably out of luck.
However, you might increase your chances of collecting on dormant accounts if you work with an experienced debt collection agency. The pros know how to collect both young and old debts, and they can save your business significant money because they handle the process on their own. You don’t have to pay salaries and benefits for in-house collectors.
The “Aha! Moment”
Dormant accounts represent lost revenue. You’ve already invested your time, energy, and money into the product or service, but you haven’t received compensation. This asymmetry throws your entire balance sheet out of whack.
You count on your customers to satisfy their invoices, and when they don’t, your projections no longer hold water and your cash flow becomes a trickle.
Instead of letting accounts get to the dormant stage, focus on proactive credit and collection decisions. Customers fail to pay their bills for many reasons. They might move and neglect to forward their mail, shove a bill into a drawer and forget about it, or stumble upon hard times. Whatever the case, you can work with them to help them satisfy their bills so your business doesn’t suffer because of clients’ poor financial management.
The “Aha! moment” is the second you realize that you want your business to run in the black regardless of how often you extend credit. Once you get to that point, you can take better control of your cash flow.
Do you have more than a few old accounts on the books? If so, you might need professional accounts receivable management help. We’re here to supercharge your collection practices through compassionate, effective strategies. Sign up now for Rocket Receivables and prepare to vanquish past due accounts for good.