Once again the calendar has turned over to December and the Holiday Season is upon us. Along with it comes three hard facts: 1)Die Hard is most certainly a Christmas movie, 2) odds are we’ll EAT ALL THE FOOD and 3) money gets really tight and collecting overdue bills is harder than at any point in the year. So how can you make sure that the credit you extend is going to be repaid all while maintaining the spirit of the season?
For many companies December 31st marks the end of the fiscal year meaning accounts receivable staff are scrambling to get their accounts in order as sales people look to close the final few sales of the year. Combine this with the consumerism that marks the season you could be faced with a serious post-holiday accounts receivable hangover come January. The best way to avoid this is by setting up good processes to not only help out now, but to manage accounts receivable throughout the year.
When your sales people are closing that final sale of the year empower them to work with your accounts receivable department, as collaboration between these two teams can go a long way in preventing overdue customer accounts. The simplest way to do this to make use of credit applications and credit checks. We’ve explored credit applications in a previous blog post, but are going to reiterate their importance; these are first line defenders against overdue accounts because they gather large amounts of information crucial to the collection of bad debt. By using the data from a credit application you can better vet this, and if you combine it with mandatory credit checks you’ve got a powerful tool that will help to determine who to extend credit to and who not to. If they don’t pass the credit check your salesperson can still offer goods or services on a cash on delivery basis.
Always have a process in place to effectively manage all accounts receivable, especially during the month leading up to and directly after the Holiday Season. Anyone who works in accounting knows that while the taps flow in December they slow to a trickle come January. One way you can do this is by setting up a simple spreadsheet that tracks how many days an account has been in the receivables pile. Set reminders for yourself every fifteen or thirty days and follow up on the ones that are thirty days plus overdue; this is your call list. Next pick up the phone and call your customer, another letter or invoice will not suffice! Even if you don’t get anywhere on the first call your customer now knows you closely monitor your accounts. If you start to see accounts continue to age without being paid after 120 days it’s time to think about engaging a collection agency because as an account ages its collectability drops significantly.
The Holiday Season is a magical time of year, but it is also financially stressful for consumers and companies alike. You can prevent yourself from a credit headache in the first quarter of the year by enacting strong credit management policies. Having your sales and accounts receivable staff collaborating and vetting potential customers with credit checks and credit applications. While keeping a list of calls you need to make for collections will help lower your risk of overdue customer accounts. These practices go a long way in helping to alleviate some of that stress caused by the Holidays and will keep your cash flow and profitability up!