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  • Posted by: Dante Odoni

Why Having An A/R Collections Policy is a Must

When it comes to implementing efficient business practices, a proper A/R collections policy should be first in line. A/R collections are essential to cash flow and working capital requirements of any organization. Payments must be made on time to keep everything running smoothly. Collection policies can range from formal to informal and can have different specifications across industries. However, the consensus is that having such policies minimizes losses and keeps businesses operating as efficiently as possible. Effective policies are those which are clearly written guidelines for payment timelines. Businesses who have streamlined their A/R collections are able to operate with minimal losses due to late payment. This also reduces credit risk and optimizes resources.

Collect Your Documents and Understand the Client

A collection policy cannot be regulated without credit documentation. This entails doing background checks on potential clients to make sure you are aware of any existing debt and their ability to pay your invoices. It’s also essential that a business’s own credit documents are up to date in case there comes a situation where legal help is needed. Accounts should be monitored on a regular basis, and there should be a “provision in credit documentation that allows for the collection of a reasonable attorney’s fee if necessary”.

Proper Procedures

When it comes to structuring procedures, goals can vary depending on the size and formality of the business. It’s also essential that this process is streamlined so that communication guidelines are clear, and there will be a smaller margin of error. There should also be continuity throughout all departments of a business. With freelance or small businesses, there is a personal element that may lend itself to more flexible collections policies, particularly if something personal were to arise and affect the client’s ability to pay on a strict timeline. In other businesses, strict collection policies are essential in preventing accounts from becoming delinquent. Whatever the policies are, they must be explicitly outlined in a contract. New customers should have clear access to payment deadlines and late fee information on statements. When it comes time to collect, an element of human compassion is also essential in yielding the best outcomes for both parties. Nonthreatening approaches are much more effective and will likely lead to the customer choosing to continue their services if they have been done so satisfactorily.

An A/R collections policy is an absolute must for any business that wants to operate efficiently. A strong policy will ensure continuity throughout the business, make sure that losses are minimized, and resources are allocated efficiently, and that customers are treated fairly and continue using the business’ services.