When Receivable No Longer Collective!

  • 18 October 2021
  • By MNS


The term receivable refers to a payment that has not yet been received. This implies that the corporation must have provided its clients with a credit line. Typically, the corporation sells both cash and credit for its goods and services.
When a firm lends credit to a customer, the sale is completed when the invoice is created, but the company gives the customer a grace period to pay the balance. The duration could range from 30 days to several months.
When it is overdue or delayed, the same becomes a major difficulty.

Trade Receivables

These are a type of financial asset that falls under the heading of “loans and receivables.” Loans and receivables are measured at amortised cost using the effective interest rate technique, according to these requirements. Initially, they will be carried at fair value at the moment of recognition, which will be the invoiced amount in the case of trade receivables/debtors.

If objective evidence exists that a loss on financial assets has been suffered, the loss must be recorded in profit or loss. Annual impairment assessments are required since trade receivables/debtors are financial assets. By comparing the carrying value of the trade receivable/debtor to the present value of the projected cash flows discounted at the effective interest rate, the amount of the loss can be calculated. Trade receivables are not generally discounted and do not have an effective interest rate, as previously stated.

For most firms, debt collection is an unfortunate reality. When clients are unable to pay for their purchases, the financial consequences can be devastating.

“These can take a long time and be pricey “

Failure to collect on unpaid accounts receivables, particularly for small businesses, can have catastrophic consequences. To collect on past-due invoices, businesses might use a range of approaches, including phone calls, emails, letters, and site visits. With Data-driven Collection Prioritisation, You Can Reduce Risk and Save Money.

Efficiency is the name of the game when it comes to commercial debt collections and accounts receivable management, regardless of the approach utilised.

The sooner businesses can be paid for goods and services performed, the better for their bottom line.

What tactics should you employ to stay ahead of bad debt and guarantee that outstanding debt is collected in the quickest and most cost-effective manner possible?

This article examines some of the most prevalent corporate debt collection best practises, how they operate, and why they may or may not be appropriate for you.

Best Practices in Accounts Receivable Collections

Debt collection is often handled by the A/R department in most businesses. Customers may, however, challenge an invoice and refuse to pay if they are unhappy with the products or services they received. Billing problems and pricing concerns, such as unapplied promotions and discounts, are also major causes of disagreements. Other departments, such as sales and customer service, may be called upon to assess the situation and identify the best course of action.

If a disagreement cannot be addressed, the delinquent account may be turned over to collections. The procedure usually proceeds like this:

It’s advisable to double-check that the consumer received an invoice before taking any action.

The customer is then notified that their account is past due through automated phone call or email. They are told that if they do not pay right away, they will be charged late fees and interest.

A service member may call the consumer if they do not react within 24-72 hours. A letter is also mailed at the same time.

Depending on the company’s grace period, this process may be repeated numerous times. The average collection period for accounts receivable is 30 days, while payments that are more than 90 days past due are considered seriously delinquent. The account may be referred to a third-party collections agency after the payment reaches the 120-day threshold or is judged uncollectible (or debt collector).

When Should You Hire a Collections Agency?

Because collections agencies are a pricey alternative, they are often used as a last resort. Debt collectors are only compensated when an outstanding debt is recovered, and when they do, it costs anything from 25% to 45 percent of the total amount owing. Despite this, collection agencies provide a valuable service to businesses that can’t afford to keep wasting resources pursuing down consumers who are clearly unable to pay their debts.

So, how can businesses collect unpaid debts without placing themselves in jeopardy or losing money? Prioritization of collections based on data and risk may be the answer.

How To Use Data to Prioritize Business Debt Collections?

Most businesses prioritise collections depending on who owes the most money and who is the most delinquent.

Customers who owe $20,000 and are 6 months past due would be prioritised over those who owe $10,000 and are 3 months past due, for example.

The premise behind this strategy is that the more money you can recover all at once, the faster you can put that cash to work.

While this strategy appears to be reasonable in theory, it is not without risk.

This strategy is hazardous since the longer an account is delinquent, the less likely the account holder will pay their bill. In particular, an account that is 90 days past due has a 69.6% chance of being paid. According to one collection agency, after six months of delinquent, the probability of collecting payment reduces to 52.1 percent, and after a year of tardiness, the chance of collecting payment lowers to 22.8 percent.

Prioritizing collections without taking into account critical customer information like business credit scores, trade payment history, and financial records might be risky.

A data-driven, predictive collections prioritisation model tells collections employees which clients are most likely to pay, and it can save your firm time and money by avoiding spending time and resources trying to collect money you won’t get.

Prioritization Techniques for New Accounts Receivables

To demonstrate the difference between a standard collections’ prioritisation strategy and a risked-based method, imagine your team is focused on recovering the $10,000 debt, while the account holder for the $5,000 debt is at high risk of going out of business, unbeknownst to them.

The team might immediately pivot their efforts if they were able to receive notifications when customers’ commercial credit scores unexpectedly changed, signifying when one of them was at risk of bankruptcy or insolvency. In this circumstance, it would be more prudent to move the $5,000 account to the top of the list and attempt to collect before the company’s financial situation worsens.


Time is money, and if you’re wasting it pursuing delinquent bills, you’re wasting time that could be better spent on operations. A collection firm employs trained experts whose main purpose is to collect on your debt.

As a result, using an agency can help you enhance your cash flow, reduce the number of days your invoices are past due, and cut down on the costs of keeping collections in-house, such as recruiting people and the time they spend trying to collect payments. Using a trustworthy collection agency will help you maintain good customer relations by avoiding difficult talks with customers that could lead to them switching to a rival.

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