Collection Strategy
A collection strategy refers to the systematic approach used by organizations or individuals to gather and manage data or information.
Collection strategy is one way to ensure that your accounts receivable stays under control and you continue to collect your cash. Without one, there is disorganization, disconnections, miscommunications and just simply chaos in the accounts receivable department. A collection strategy sets a standard for how accounts receivable collections will be conducted. When will you be sending out first invoices? How often will you get in contact with your customers? Are you making follow up phone calls? If there is no order, then customers will fall through the cracks. If you aren’t ensuring that a follow up phone call is made after a collection letter goes unanswered, than your average days late will only increase.
The companies’ previous methods during easy credit times may not be suitable for the current economic situation. Numerous conditions are affecting the collection strategies, including:
1. High Number of Collections
Due to the high number of collections, the collection strategies of the business become futile. A large number of consumers are facing problems in paying their debt. As people continue to lose their job, the burden of collection increases on the company, accumulating a large number of debt in the company’s financial statements[1].
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2. Unreliable contact Information of Debtors
The collection becomes impossible when the client is untraceable. As people lead busy lives and frequently move to different locations, it becomes hard for the collector to trace them. Even if the collector is trying to pay the debt, it becomes hard without the latest contact information to have friendly contact with the client. This problem arises when the collection strategies do not involve multi-channel of communication. Maintaining an alternative method of contact through mail, mobile, phone numbers, or a representative can help the collector contact the client. Skip tracing could be the method to trace the whereabouts of the client.
3. Same collection Strategies
Big businesses generally make a mistake in their collection strategies. Applying the same collection process in different clients’ situations has made the company face losses. These losses forced the company to opt for different strategies for clients. Generally, different client requirements are needed to be fulfilled, which has necessitated the companies to apply different strategies in negotiating with clients and help recover full payment.
4. Requires time in Identifying Delinquent Accounts
The fundamental challenge that the collectors face is sorting the delinquent accounts. Too much information on a debtor could also adversely affect debt recovery. Sorting contact information from large amounts of data could require a lot of time, effort, and sometimes money. Moreover, searching for delinquent accounts and analysing them is a heavy task that could lead the collector to make mistakes in the long run.