Collections of Invoices

Collections of invoices simply mean to receive payments on sales made. After all is said and done, unless the receipts are realized and actual payments are collected, there is no revenue, profit, or growth. So at the end of the day it really boils down to collections of invoices. With the constant inflation risk and the opportunity cost of stuck up money, it has become increasingly important to have a streamlined process for regular and timely collection of invoices to maintain the liquidity and profitability of any business. This is the primary, and perhaps the only, reason for the keeping and management of credit departments in companies.

Long gone are the days when thugs and gunmen used to be the preferred means of scaring your debtors to pay back the owed amounts. Now elaborate and sophisticated means need to be in place for uninterrupted and smooth collection of invoices from your customers. These collection scenarios are also supposed to be adapted to your specific product and business needs and also need to be in line with the cash and profitability targets of your company.

Ideally the collections should be made within the pre-decided time that you have allowed your customers for the payments – known as the due date of invoices. Therefore, the first move that your credit department, or preferably outsourcing partner (we will get to this shortly), needs to make is before the due date has passed. This could be as simple as a reminder for the payment of owed amount or may need stricter action that varies from case to case. This action not only makes payments on time more likely, but in case there is a lurking dispute, it also helps in early identification and therefore quicker resolution to the problem. Such an intimation or notification is also helpful in case the matter goes to the extent of legal action, in which case such a move can act as a proof of your good faith in the legal process against your defaulter customer.

If, however, the collection date has passed even then there is no need to panic immediately. There can be loads of reasons for the delay in payments, starting with something as innocuous as bad management at the end of your customers. There have to be enough time passed between the collection date and the actual payment for you to take serious action. Here is a sample process that can fit most companies:

According to Credit Tools, the collection process is divided into four phases:

The pre-dunning phase; which is where you start with the notification even before the due date has passed – an email or a phone call, preferable one which can be kept as a record.

Level 1; whereby the collection date has passed by a week or so despite the first notification. This is where you start to investigate the reasons for the delay in payments. There could be a myriad of reasons such as the check had been dispatched but it got lost on either end, bank transfer made with wrong details, wrong payment amount made to wrong supplier and so on. Such an issue can and will be easily and immediately resolved in most cases.

Level 2; this is direr and situation is likely to become more serious. This is the non-payment despite two weeks or more since the due date has passed and even after the initial notification had been sent and any minor issue identified. If it turns out that your client is unable to pay because of cash limitations or administrative issues, then it is up to you and your previous history of payments with this particular client. However, if there is no previous record to maintain trust or if there is indication that the customer simply does not want to pay, then a firmer action needs to be taken that may include involving your colleagues, industry players, sales managers, higher officials and so on. This is often accompanied by a stronger and stricter phone call and email as well.

Level 3 and final contentious stage; this is the pre-litigation and litigation stage where the final attempt is made to resolve the issue amicably, and then the owed amount is classified as bad debts and written off until it’s collected after litigation, or utilization of other internal organizational resources at your disposal.

Outsourcing in this case is perhaps the easiest to explain, whereby your BPO partner not only takes the full-service responsibility of getting you through all the above stages but also provide an array of additional services. Intersoft BPO brings you the organization, record keeping, and management of all your collections at any point in your revenue cycle, collect your invoices, resolve your disputes, and ensure smooth operations from your cash flow to your income generation. The cost that goes into hiring an outsourcing partner is far less than the cost of undergoing all the necessary means, as well as the cost of losing out on payments altogether. In terms of resourcefulness as well as financially, logistically, operationally, and pragmatically outsourcing is a better option than keeping this collection responsibility in-house.