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Maximizing Your AR

Marc E. Davenport
President ~
Rogers & Murdock, Inc.
18062 FM 529 Road, Cypress, TX 77433
(281) 550-9580 / (866) 550-9580
(866) 214-8228 FAX
Email:   marc@rmifinancial.com
Web:    www.rmifinancial.com

For every business committed to maintaining optimum cash flow, it is imperative that you develop and implement effective practices for securing monies owed to your business and curtailing potential debtors. Over the past several years we have seen very troublesome statistics materialize with respect to business to business debt collections. The statistics are particularly upsetting for small and medium-sized businesses trying to collect on their outstanding receivables. Consider these figures:

• According to collection industry research, the average delay for a due payment is 55 days for large businesses and 66 days for small businesses.

• Just 10% to15% of small businesses insist that their terms of payment be met and also rely on third-parties such as collection agencies and litigators to address outstanding receivables.

• The greater the size of the debt owed, the lower the percentage of likelihood that the debt will be collected.

In all instances, the likelihood of successful debt recovery is increased dramatically when the process is outsourced to a reputable, third-party credit management firm. In fact, today, it is estimated that over 90% of large businesses and approximately 10% of small businesses rely on professional debt collection agencies, with middle-market businesses falling in the middle. These companies are already benefiting from third-party intervention. For those businesses that have yet to be sold on the benefits of outsourcing their receivables management and collection processes, it is important to gain greater insight into how to avoid potential problems and implement best practices for credit management.

“The Best Defense: A Strong Offense”

A key strategy for debt recovery is, of course, is not to incur the debt in the first place. For this objective, there are definite measures a business can take to prevent tardy receivables. It starts with the right documentation to establish your company’s “Conditions for Doing Business” (CFDB). Your CFDB should clearly state:

• What your customer(s) should expect from you (i.e., type of product/service, quantity and projected date of delivery/completion); and

• What you expect in return for the product/service rendered, including: payment to cover cost of product/service, payment due date, late payment penalties and/or allowable interest.

It is important to present your CFDB to your customer(s) prior to shipping product and/or providing services and it is best to secure a customer’s signature on the CFDB document on the front end of the transaction. In addition to gaining your customer’s confirmation of these terms on the front end of a transaction, companies communicate this information to their own employees; not just those serving in the accounts payable/receivables department, but equally important, sales, marketing and customer service personnel. Sales representatives, specifically, in an effort to land an account will often forego the formality of reviewing your company’s payment policies; a practice which can lead to unnecessary risks and future debt. Therefore, they must be trained to openly share this information with their new accounts and present the terms in a positive light. A technique that works well is for the sales representative to present the sale of your company’s product/service as representing a win-win for both organizations. Your sales representatives should be enlightened as to how good communications of business terms generally garners a prospective client’s respect and does not jeopardize a sale, but conversely, bolsters it. As an added strategy to motivate sales representatives, many companies have found that holding back a sales representative’s commission until their customer pays can be effective in facilitating prompt payment and avoiding collection problems.

RMI is a nationally recognized commercial collection agency with offices in suburban Philadelphia, PA and Houston, TX.  Our primary focus is to improve cash flow, reduce daily sales outstanding (DSO) and to increase the overall profitability of your organization.

Sincerely,

Marc E. Davenport
President ~ Rogers & Murdock, Inc.
18062 FM 529 Road, Cypress, TX 77433
Voice:       (281) 550-9580 / (866) 550-9580
Fax:          (866) 214-8228
Email:      marc@rmifinancial.com
Web:        www.rmifinancial.com

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