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Why A Debt Management And Collections System Is Essential To Accounts Receivable

By Expert Author: billing tree

Most companies run on cash, and require timely payments through effective accounts receivable management. However, with the rising rate of delinquencies, businesses are looking for alternative methods to the standard send-a-letter way of collecting, and turned to a debt management and collections system. There are effective strategies for collections that can quickly lower AR (Accounts Receivable) balances. These strategies can increase on-time cash flow for the business, and serve as an effective tool for protecting against bad debt.

Many times, the customer is facing issues as a result of the challenging economy and will delay their payment to the company as long as possible. Other times, invoices are left unpaid because there may be some problem that needs to be addressed before any payment is made. It is often a task of the collections department to apply pressure for payment without causing damaging friction that could impact customer relations in negative light.

In many businesses, debt management is often considered unavoidable and a necessary component of the company. In fact, this portion of the company is actually akin to the sales process, and a solid way to build a mutually long-lasting beneficial relationship between both the seller and the buyer. In reality, using an debt management and collections system, the company can transform collecting past-due bills from a cost-draining problem to an effective tool for the sales department.

Why “Collections” Is Essential

Because cash flow is necessary to drive the business, every amount of effort in collections is crucial to the success of the company. If an invoice cannot be converted into cash within a specific timeframe, management will need to find alternate sources of funds to run the operation. Until the invoice is paid, no sale has transacted. Once the company understands that collections are tied to sales, it is easier to comprehend why an effective system for debt management and collections is necessary. Accounts Receivable management is not a department that enforces payment through collections. In fact, “collections” is an action performed by attorneys and collection agencies that go after “debtors”. Accounts Receivable handles “customers” and works with them to pay the bill. Once the invoice is converted to cash through the efforts of Accounts Receivable management, the sale is finally complete.

It should always be the focus of the Accounts Receivable department to keep their customers current on payments and continually buying new services or products. The underlying goal of an AR department should be to stimulate repeat sales. The last action of a successful company would be to create any type of impediment that would deter repeat business. Reviewing the best debt management and collections system is comparable to interviewing a prospective new employee. Understanding the limitations of the program, stacked up against the needs of the company, can help the AR department understand which system will work in the best possible manner.

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