In the ordinary course of business, it is often inevitable that there will be a need to recover outstanding accounts receivable.
It is therefore important to implement strategies across the business which minimise the risk of recovery action being needed and maximise the prospects of success when recovery action becomes necessary.
Effective accounts receivable management starts with the first contact with a client. Every business needs to know their clients. Far too often, sales people sign up new accounts without obtaining the correct client information.
Is the new client a registered business name or a company? Is it registered correctly in the relevant jurisdiction? Has the new client provided sufficient information so you can determine if they are insolvent? Have they signed a contract? Are new client procedures being followed? Are these procedures adequate or out of date?
Obtaining the correct information at the commencement of a business relationship will help management determine whether the business should take on the client and the credit terms which should apply to them. It will also make recovery action far simpler should that become necessary in the future.
Even if the client information is correct at the time the business relationship commences, it should be periodically updated. Clients change address and change key management and credit employees. By adopting an appropriate periodic review, businesses can ensure they have the correct client information should recovery action become necessary.
Many of the problems associated with the recovery of accounts receivable can be traced back to the initial contracting or the failure to keep client information up to date.
Extra time spent getting the correct client details and a contract correctly signed can pave the way to easier enforcement of amounts owed and less wriggle room for debtors to evade payment.
PELEN
December 2016
Accounts Receivable - PDF Version
© PELEN 2016
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