For many small businesses these days, it is smart practice to have a debt collection partner in place well before ageing debts accumulate and threaten the viability of the business operations. And you can engage a debt collection agency to streamline your entire billing cycle, not just handle your old debts owed to you.
Rather than seeing debt collection as a reactive process to recover payments, it’s increasingly being seen as an ordinary part of the entire accounts receivable process. The benefits of activating debt collection systems early on cannot be understated, given the importance of healthy cash flow to the survival of small businesses.
Small business owners often wonder at which stage they ought to be calling in the professionals when it comes to chasing accounts. They often ask themselves, just how old does a trade or commercial debt need to be before it should be sent to a collection agency? Traditionally, outstanding debts are sent to a debt collection agency when they fall 90 to 120 days past due. But this is a very long time for your small business to miss out on crucial cash flow.
Generally, it’s better to start collection activity no later than 2.5 times the length of time of your standard terms of trade, or preferably sooner. Taking prompt action on overdue accounts means it will be much more likely to be collected, and will prevent your client slipping further into the red as goods or services continue to be accessed before old accounts are paid off.