Collection Agencies

Collection agencies are businesses established to collect past-due accounts receivable on behalf of creditors. The primary advantage that collection agencies offer is their superior knowledge of persuasive collection techniques. Additionally, creditors are usually anxious to clear in­voices referred to collection agencies rather than further damage their credit ratings.

The collection agency's fee is usually based upon a percentage of each account collected. The percentage ranges from 25% to 50% depending upon the size of the account or the total dollar volume of accounts referred to the agency for col­lection. This approach, while often effective, can be expensive.

A business is committed to paying the agency's fee on any account referred for collection, whether payment is made to the agency or to the business. Although some creditors may resent making payment to a collection agency and prefer to pay the company directly, the company is still committed to pay the fee when the account is collected.

Courts

If the collection agency fails, your final recourse is through the courts. The matter may be resolved in a small claims court if the amount owed is small. For larger amounts, you may have to file suit to collect. In either case, you are faced with a costly and time-consuming procedure.

The best way of avoiding these time-consuming, costly procedures is to take prompt, strong action on your own as early as possible. In the long run, you will be doing not only yourself a favor but also the creditor. While your creditors may be unhappy at the time, you will have spared them costs, time, and the loss of their credit ratings.

Credit Cards

Many problems associated with credit can be avoided through the use of credit cards. In many businesses, particularly in the retail and consumer service fields, credit arrangements for customers are available through the use of these cards. Under these plans, there is little or no com­mitment of the business' own capital, and the costs and risks of administration and collection are almost entirely the responsibility of the credit card company or bank.

Credit card service is available from your regular commercial bank. Receipts from bank credit card purchases can be deposited daily and are immediately credited to your check­ing account. The bank assumes all credit risks provided that you follow instructions for approval of credit card purchases. Typically, these instructions require that you check the validity of the card against a master list of canceled cards and contact the credit service before accept­ing the customer's card for purchase above a certain limit.

Credit card services are particularly vital for businesses with a large number of relatively small accounts. They eliminate the need for credit approval, invoice preparation, record maintenance, and collections. They also minimize your commitment of capital and virtually eliminate the risk of un-collectible accounts. From a marketing standpoint, the availability of instant credit could often encourage a customer to buy immediately, rather than postpone the decision to a later date or bypass it completely.

Credit cards are most often used for retail accounts. How­ever, they have also been used successfully in selling to small commercial accounts. Businesses such as repair shops, supply firms, and stationery stores, which have a mixture of consumer and commercial accounts, often find it convenient and economical to extend credit card service to small commercial accounts.

Credit And Collection Policies

The establishment and execution of credit and collection policies can minimize problems associated with accounts receivable. As with all policies, they must be reevaluated from time to time in order to determine their effectiveness. If your business already has policies for receivables management, evaluate them according to the check list on the following pages. If you do not presently have credit and collection policies, you can use the check list as a guide in establishing policies.

Your answer to all questions should be "Yes" or "Not Applicable." If you have any "No" answers, you should consider revising your policy or have a strong and valid reason for not doing so. For example, you may have a "No" answer to the question, "Do you offer a cash discount?"

If your accounts are primarily personal, this might be a valid answer. If your accounts are primarily major in­dustries, a "No" answer would suggest that you consider the possibility of offering a cash discount.

CREDIT AND COLLECTION POLICIES CHECK LIST

Credit Approval

Is a written application required with every credit request?

Do you have a standard form for credit applications?

Is it completed personally by the applicant?

Is it reviewed for completeness?

Is all information verified for accuracy and timeliness?

Are applicants checked out with a credit bureau?

Does your evaluation consider income?

Does your evaluation consider fixed obligations?

Does your evaluation consider job stability?

Does your evaluation consider residential stability?

Does your evaluation consider credit history?

Does your evaluation consider bank balances?

Does your evaluation consider other assets?

Invoices

Are invoices prepared promptly?

Is invoice preparation always accurate?

Are payment terms clearly stated?

Are customers' special instructions followed carefully?

Terms of Sale

Do you offer a cash discount?

Do you use a late payment penalty?

Is the time limit for payment clearly stated?

Statements

Are monthly statements submitted to all open accounts?

Are statements prompt and accurate?

Problems of Identification

Do you determine your average collection period on a regular basis?

Do you compare your collection period with industry averages?

Do you compare your current collection period with your previous experience?

Do you compare your collection period with your payment terms?

Do you have a monthly aging of all outstanding accounts?

When a problem is identified, is corrective action prompt and firm?

Follow-up

Do you have a systematic procedure for follow-up on slow accounts?

Is there a standard sequence of follow-up letters?

Is the tone of these letters progressively stronger?

Do you use the telephone to contact delinquent accounts?

Is your telephone technique effective?

Do you offer special arrangements for collecting past-due accounts?

Do you have a late-payment penalty?

Do you put delinquent accounts on a C.O.D. basis?

External Resources

Do you have a working relationship with a collection agency?

Are accounts turned over automatically after a specific time period?

Do you refer the most serious delinquencies to an attorney?

Evaluate your budget periodically with real operations figures. With effective records you can do this. Afterward, where
discrepancies appear it is possible to take corrective action before it's too late. The right choices for the ideal corrective
action will depend upon your understanding of management methods in buying, pricing, selling, selecting and training personnel,
and handling other management issues.

You probably are thinking you can hire a bookkeeper or a Accountant to deal with the record keeping for you. Yes, you can. But
remember two very important details:

1. Provide the accountant with true input. Should you buy something And don't record the sum in your business checkbook, the
accountant can't enter it. Should you sell something for cash and do not record it, the accountant won't know about it. The
documents the accountant prepares will be no better than the info you provide.

2. Use the documents to make conclusions. If you moved to a doctor And he told you you were ill and wanted certain medication to
get well, you would follow his guidance. Should you pay an accountant and he informs you that your sales are down this year, do
not hide your head in the sand and pretend the issue will go away. It won't.

Business Management Roll in Personnel Selection. If your Small Business Will be big enough to require outside assistance, an
important responsibility will be the choice and coaching of one or more workers. You may begin with family members or business
partners to assist you. But when the business develops - as you hope it will - the time will come when you must select and train
personnel.

Careful selection of personnel is vital. To select the right Employees determine beforehand what you need each one to perform.

Then look for applicants to fill these particular needs. In a small Business you will need flexible employees who can shift from
task to task as needed. Include this in the outline of the tasks you would like to fill. At the same time, look ahead and plan
your hiring to assure an organization of people capable of performing every essential function. At a retail store, a salesperson
might likewise do stock-keeping or bookkeeping at the outset, but as the company grows you'll need sales people, stock-keepers and
bookkeepers.

When the job descriptions are composed, line up applicants whom To make a choice. Do not be swayed by clients who might suggest
relatives. In the event the applicant doesn't succeed, you may lose a client as well as a worker. Some sources of possible new
employees are:

1. Tips with friends, business acquaintances. 2. Employment agencies. 3. Placement bureaus of high schools, business schools, and
schools. 4. Trade and industrial associations. 5. Help-wanted advertisements in local newspapers.

Your next task is to display want ad answers or application Forms sent by employment agencies. Some applicants will be removed
sight unseen. For every one of the other people, the application form or letter will act as a foundation for the interview that
ought to be conducted in private. Put the applicant at ease by describing your company generally and the occupation particularly.
As soon as you have completed this, invite the applicant to talk. Selecting the right person is extremely important. Consult your
questions carefully to learn everything about the applicant that's pertinent to the job.

References are crucial, and should be assessed prior to making a final decision. Check through a personal visit or a telephone
call directly to the applicant's immediate previous manager, if at all possible. Confirm that the information given you is
accurate. Consider, with conclusion, any negative comments you hear and what isn't said.

Checking references may bring to light significant information Which may save you money and future annoyance.

Personnel Training. A well-selected employee is only a possible Asset to your business. Whether or not he or she becomes a true
advantage depends on your own training. Remember:

To allow sufficient time for instruction. Not to anticipate too much from The trainee in too brief a time. To let the employee
learn by performing under real working conditions, with close oversight. To follow up on your training.

Check the worker's performance after he or she has been at work For a moment. Re-explain key points and short cuts; bring the
employee current on new developments and invite inquiries. Training is an ongoing process which becomes constructive oversight.

Personnel Supervision. Supervision is the third crucial of personnel control. Good oversight will reduce the cost of operating
your company by cutting back on the number of worker mistakes. If mistakes are corrected early, workers will find more
satisfaction out of their jobs and perform much better.

Motivating Employees. Small businesses sometimes face particular Problems in motivating employees. In a large company, a good
employee can see An opportunity to advance into management. In a small business, you are the management. 1 thing you may wish to
consider is to give great workers a Small share of their proceeds, either via part-ownership or a profit-sharing plan. Somebody
Who has a"share of this activity" is going to be more Concerned about helping to make a success of the business.

 party-planning payday-loan pc-building peer-to-peer-lending personalized-items pet-grooming petrol-pump pet-shop pharmacy phone-repair photobooth photo-editing photo-studio pickle picture-framinghtm pilot-car pisonet plastic-recycling play-school pool-cleaning popcorn poshmark pottery powder-coating press-on-nail pressure-washing print-on-demand public-speaking publishing pudding pumpkin-patch puppy purse puzzle quail-farm quarry quilting rabbit-farming rage-room ramen ranching real-estate-photography recording-studio remodeling rental-property reselling resume-writing ribbon rice-mill rice-retail rideshare roadside-assistance roadside-food-stall