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Create a System for Better AR Collection

November 3, 2015

Following the recession, the city of Richmond, Va. faced $40 million in delinquent taxes from people who hadn’t paid their personal income and real estate taxes. The city never used a collection process, so the unpaid tax bills continued to grow.

Soon, the city was facing a budget deficit and a downgrade in its AAA bond rating. The city hired PRC to design a collection process to recover its unpaid taxes. Within two years, PRC worked with hundreds of thousands of city residents to help them pay their taxes and recovered $10 million, or 25 percent, of its unpaid tax bills. Now, the city has a process for managing its A/Rs.

Of course, many organizations have some type of system. But in many cases, the process is haphazard, with accounts unpaid for a very long time. And the longer an account goes unpaid the less chance you have to recover that money.

By setting up an organized system and sticking to it, you’re more likely to collect those debts. But how?

For example, the process might be to send two or three statements in the first 60 days and then follow up with phone calls in the next 30 to 45 days. Then, if there is still no response, turn the account over to a professional collection agency.
Simple: Outline the collection procedures with specific dates and the action that will occur.

Here is a sample timeline:

  • Week 1 – Review your 30-45 day past due accounts. Make first collection call. If no contact, send past due letter now.
  • Week 2 – Review your 40-60 day past due accounts. Send past due letter or make collection call.
  • Week 3 – Review your 61-75 day past due accounts. Make second collection phone call or send final letter.
  • Week 4 – Review your 76+ day past due accounts. Send delinquent account to agency.

Of course billing timetables vary by industry and organization. The key is to create a schedule and stick to it. In this example, in a month, you will have reviewed your entire past due accounts from 30 to 75 days old.

While you may not collect on all of them, at least you’ve made sure each account has received some attention — leaving less of a chance to let money fall through the cracks.

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