If you’re a collections manager or work in accounts receivable, it can be overwhelming to come into the office every day and see a long list of customer calls to be made, collection letters or emails to be sent, and overdue accounts that should be dealt with. Where do you even start?
Let’s take a look at some proven strategies for prioritizing your day and maximize your effort to collect on as many overdue accounts as possible.
Who You Gonna Call?
Hint: It’s NOT Ghostbusters
In accounts receivable and collections, it’s all about balance and efficiency. Especially if you’re at a smaller company with a two or three-person accounting team, you don’t have the time or resources to call every single overdue account. So, you need a process in place to help you choose which accounts justify the time and effort of a phone call versus those that may only require a quick email or automated reminder.
We recommend that you opt for email (ideally, email that’s triggered automatically from your Accounts Receivable Management software) to accounts that are on the lower end of days past due. These are friendly reminders that arrive early in the collections cycle. Sometimes a simple email reminder is all it takes to get an overdue account off your list.
At this point, you’ll want to schedule a follow up task for yourself because if invoices remain outstanding after a round or two of email reminders, it may be time for a collections call.
👉 See Also: How to Write Invoice Reminder Emails / How to Prepare for a Collections Call
Using Aging Buckets to Prioritize Collections
Your workflow and process for prioritizing customer accounts and overdue invoices can make or break how well your accounts receivable team performs. While there are many different methods for deciding which accounts to tackle first, one of the most effective is to assign customers to accounts receivable aging buckets.
These aging buckets can vary based on your unique company and industry, but the most common are:
- 1 - 30 Days Past Due
- 31 – 60 Days Past Due
- 61 – 90 Days Past Due
- 90+ Days Past Due
One approach is to work your way backward by prioritizing calls to the customers that are in the 90+ days past due bucket. Once that’s complete, you move into the 61 – 90 days bucket and continue calling. Concurrently, automated emails should be going out to customer accounts that are much earlier in the collections cycle (as mentioned earlier) to keep things from getting out of hand. In other words, you don’t stop emailing some customers because you’re calling others – they should both be happening at the same time.
Using a Client Ranking Method
Another way to prioritize collection calls and maximize success in accounts receivable is to create customer rankings. Because not all customers are the same, one blanket collections policy may not apply to certain groups of customers. For example, you might create the following customer rankings:
Category A – these are your biggest customers that regularly purchase a high volume of products and make their payments on time. The profit margin from these “A-listers” is high and their relationship with your business is a top priority.
Category B – these customers are in good standing and generally pay on-time but don’t do as much volume or perhaps aren’t as profitable as you’re A customers. But still solid, consistent, reliable, and generally pay on-time.
Category C – these customers purchase infrequently, often only buy from you during a sale, and can be somewhat forgetful when it comes to paying their invoices on-time.
Category D – these customers are always trying to get a discount, require a lot of time and attention, aren’t very profitable, and frequently require multiple calls and reminders before paying invoices.
When you use a client-ranking approach, you would still develop an overall company-level collections strategy of course. But you would also develop a slight variation of that policy for each customer-ranking group, as each group responds to collection efforts differently. In fact, you can use aging buckets in conjunction with client rank as another level of fine-tuning and prioritizing which accounts to follow up with first (i.e. all category D clients that are 90+ days past due get a call before category C clients in that same aging bucket).
Using a Collections Calendar
While the paper calendar sitting on a desk with written notes has been around for a while, today’s modern accounts receivable collections software makes this “old fashioned” approach great again. As a collector, you start your morning by launching the software and viewing the tasks on your digital calendar to instantly see a list of what you need to focus on for that day.
The software generates a list of priorities for the day based on the collections method you’ve established (aging buckets, client ranking, other). If tasks were left over from previous days, they're going to show up in red, as past due and high priority.
And if you’re a manager, you can see the progress of other collectors, their task lists and calendar, and which accounts are still past due. With some advanced systems like Collect-IT, you can even reassign collections tasks to another member of your team who may have more time to follow up.
Accounts Receivable Automation Software
This is the most ideal option for accounts receivable professionals. An accounts receivable automation platform is typically integrated with your accounting software so that is automatically synchronizes customers, invoices, account status and more. Follow up reminders can be set to pop up directly on your home screen or collections dashboard where you are already working.
In addition, AR collections software centralizes all of your data and activities, allowing collection efforts to continue even when an employee is away from the office and you don’t have access to his or her hand-written notes or locally-saved spreadsheets.
For companies with numerous customers and more than 100 invoices generated per month, accounts receivable automation software is a must in accounts receivable in order to prioritize your day, preserve cash flow, and collect payment on overdue invoices.
The Ultimate Guide to AR Collections
If you want more tips like this, click below to download our Ultimate Guide to AR Collections where you'll find 27 pages of expert advice, best practices, industry benchmarks, and loads of letter templates and call scripts.