WHEN TO PLACE AN ACCOUNT FOR COLLECTION

By Michael C. Dennis

Determining the right time to place a B2B customer account for collection is a vital skill in credit management. Instead of adhering to strict timelines based solely on days past due, it's essential to exercise judgment and consider various factors that can influence this decision. To shed more light on this critical process, let's delve deeper into some of the key conditions and scenarios that credit pros should take into account:

1. Bounced Checks - A customer's habit of bouncing checks, whether with your company or other vendors, can set off warning bells. For instance, if your company receives a bounced check from a client, it's essential to monitor the situation closely.

2. Refusal to Rectify a Bounced Check - If the customer bounces a check but refuses to take the necessary steps to replace it or address the problem, it becomes a matter of concern.

3. Stalled Progress in Debt Collection - A Sign of Trouble: When your internal collection efforts appear to stagnate, making no substantial progress in clearing the unpaid balance, this is a cause for attention.

4. Communication Blackout - Silence Speaks Volumes: If the customer becomes unresponsive, either not taking your calls or not returning them, it's a clear indication of trouble.

5. Days Past Due - Accounts that are 60 or even 30 days past due should automatically raise red flags.

6. Tax Liens - The presence of federal or state tax liens on the debtor's company signals potential financial distress.

7. Employee Turnover - Significant changes in the customer's personnel, particularly among senior employees, can be a warning sign.

8. Broken Payment Commitments - When the customer repeatedly fails to meet payment commitments or offers inconsistent payments, it can raise doubts about their creditworthiness and viability.

9. Refusal to Acknowledge Debt - When the debtor refuses to acknowledge the outstanding balance in writing, it's a concerning behavior

10. Payment Plans Without Commitment - If the customer proposes a payment plan but is unwilling to sign a Promissory Note, it may indicate a lack of commitment.

11. Bankruptcy Consideration - When the customer starts talking to its creditors about bankruptcy protection, it's a sign of severe financial difficulties.

12. Changing Banks - If the customer is in the process of switching banks, it can complicate the payment process and pose collection challenges.

13. Bank Loan Covenants - Violations of bank loan covenants can have far-reaching implications for the customer's financial stability.

14. Bank Account Frozen - When the bank freezes the customer's account, it becomes increasingly challenging to collect outstanding debts.

15. Check on a Closed Account - A Clear Indicator: Issuing a check on a closed account is a glaring sign of financial problems.

16. Ownership Changes - Recent sales, bulk asset transfers, or other business changes can introduce uncertainty into the collection process.

17. Debt Settlement Proposals - A Last Resort: When the customer offers payment plans to trade creditors as an alternative to bankruptcy, it may suggest financial instability.

18. Consulting with a "Work-Out" Specialist - When a customer asks you to speak with their "work-out" specialist, it indicates serious financial trouble and high risk.

19. Indifference - If, when threatened with collection, the customer appears unconcerned, that is deeply problematic and a deep concern.

It's essential to approach this process with the understanding that no single trigger should dictate when an account is placed for collection. Instead, a holistic view, considering the debtor's behavior and broader financial landscape, should guide the decision-making process. In doing so, credit pros can navigate the complexities of credit management effectively while mitigating financial risks.