Quick Collection Escalation
Welcome to Tuesday Talks by Metro Group, where we offer insight into issues shaping the current business environment. Metro Group regularly collaborates with partners across the shipping and logistics industry to stay ahead of the issues.
We have heard that line over and over again! Along with the question "at what point should an invoice be placed with a third party collection group?" It may seem obvious, but the more effort that is put on receivables earlier in their aging, the better the collection rate will be. This is especially important during times of lower cash flows, such as during a pandemic with an economy that is difficult to predict. In fact, often we have found that companies have processes or annual objectives that cause disincentives towards taking actions to collect faster. Finance teams want to show higher internal success rates on collections or want to minimize expenses or don’t want to “give up”, not realizing the negative impact that slower collections has on their company.
Based on our decades of experience in collecting business receivables, we have found specific “tipping points” with regard to accounts receivable. First, internal teams should be able to complete all their collection efforts within 45 days...but, let’s be generous and use 60 days. After that, a receivable should be turned over to a third party collection process. We have found very high collection success rates when placements occur at invoice aging between 60-80 days – in fact.
our experience has been between 70% and 90% recovery of net placements with a small dependency on dispute levels. The success rate declines as the age of invoice placement is older with a final break point at over 150 days where collection success has averaged closer to 20%. So, be mindful of your cash flow. Hold your team accountable for a process that focuses on collecting cash as fast as possible. We believe this includes utilizing a strategic third party partner that can take over when the internal team has not been able to collect invoices within 60 days. Because, Cash is KING!