There are various reasons why credit departments place accounts for collections at 90 days, however; this one reason I’ll point out because it makes the best sense to our clients. According to the Department of Commerce, once a receivable passes 90 days the chances of recovery start to fall off like a bad DOW chart such that when it reaches 180 days the likelihood of recovery is roughly 30%, and when it reaches 1 year the chances are less than 10%. The question becomes whether to continue holding the accounts that have aged beyond 90 days and watch much of that money disappear over the next few months, or to place them in collections at 90 days.

Time is Money

Collecting past-due receivables, similar to investing in the stock market, is knowing when to cut loses.

There are various reasons why credit departments place accounts for collections at 90 days, however; this one reason I’ll point out because it makes the best sense to our clients. According to the Department of Commerce, once a receivable passes 90 days the chances of recovery start to fall off like a bad DOW chart such that when it reaches 180 days the likelihood of recovery is roughly 30%, and when it reaches 1 year the chances are less than 10%. The question becomes whether to continue holding the accounts that have aged beyond 90 days and watch much of that money disappear over the next few months, or to place them in collections at 90 days.

Even If a delinquent customer pays eventually, by holding your company’s money they are costing your company money because time is money. Beyond a certain point the cost is measured not only in terms of not having the money in-house but also in the time that it takes to chase down the customers that are breaking promises, making excuses, or simply not taking your calls.

If your company is like many of the clients that we are working with, in addition to focusing on their core businesses and doing what it is they actually do to make money, they are generating financial reports, conducting audits, nurturing client relationships, and it’s not easy for them to chase down the delinquent customers that are abusing their payment terms and at the same time maintain the accounts that are current, which is why they work with us.

In today’s volatile economic climate, our clients recognize that exposure to risk is never advisable. They understand that when large corporations seek protection under the bankruptcy codes it creates a ripple effect, increasing the likelihood that some of their own customers, who may already be on the fence, can easily be the next to fall. Consequently, holding on to receivables that have aged beyond 90 or 120 days is akin to playing with fire. It can easily result in customer name changes and bankruptcies.