Bad Debt Prevention Part 1
Bad Debt Prevention
Read this 4 part series to discover the most common and preventable errors your accounts receivable department makes that can lead to bad debt losses.
I believe, after nearly 30 years of making collection calls in over 40 industries, that many, if not most, collection problems are preventable.
Not all, in some industries, bad debt prevention is all but impossible, but let’s make sure you and your accounts receivable department are doing everything you can to avoid bad debt collections.
Bad Debt Prevention Begins with the Sale!
I’ll bet you thought I was going to start with credit checks, didn’t you? It is important that you check credit if the sales amount warrants it, and I’ll talk about this at length later in the series, but I want to start with one of my pet peeves. Incomplete or non-existent contact information is a massive problem for many accounts receivable collectors.
So, my first question for you is, do you have a system in place for either you or your salespeople to collect complete contact information during the sale? And, where do you put the information when you get it? If those sound like stupid questions, consider this, in more than 80% of the companies I’ve collected for, whether I’m collecting accounts receivable or bad debt, the only available contact information is either the email or cell phone number of the buyer.
I’m not talking about single-person companies either; this goes on in companies with millions of dollars of annual revenue and dozens, if not hundreds of employees.
- Primary number for the company missing
- Last name of the purchaser missing
- No information for accounts payable, the controller, or the owner.
- Shipping or delivery address only, often a warehouse or service center with no office employees.
Ask these folks for accounts payable, and they won’t have a clue how to help you!
It blows my mind (am I revealing my age with that term?) when I pick up an aging with 40% of the receivables over 90 days and find the only available contact information is the disconnected cell phone number of the person that placed the order. This problem is NOT TRIVIAL! And everybody does it. I’ve been guilty of it myself, I get excited during the sales process and get the information most relevant to the sale, how many and how much. I’ve even forgotten to ask for a phone number, or sometimes an email!
A Simple Solution
If you’re an owner or a salesperson, this solution will work for you. If you’re an accounts receivable professional, it will still work, but you may not even see the paperwork until it’s ready to invoice, so it’s a bit harder. In any case, I’ll tell you how I deal with it, and you can figure out how to adapt it to your needs.
I created a 2-part form with everything I wanted on it. I take it to a local printer who turns it into a spiral-bound book with 25 to 50 sets per book. I keep one on my desk within reach, so it’s always available.
When I’m talking to a prospective customer, I grab it, and at the appropriate time, I ask all the questions and fill it out. One copy goes to the data entry person, and I keep the one in the book, so I always have a printed copy.
There may be a better way to do this electronically, but I fare better with a paper and pen.
The Bottom Line
Rule # 1 – Get complete contact information at the time of the sale.
Rule # 2 – If Rule # 1 doesn’t work out, get complete contact information as soon after the sale as possible.
Takeaway – Download Your Free Contact Information Checklist Here. BTW have you read “The Checklist Manifesto: How to Get Things Right” by Atul Gawande? It’s a terrific book about the value of checklists. Read it, and you’ll find a new respect for the lowly checklist.