The economic cycle is made up of four phases: expansion, peak, recession, and trough. Right now we are in an expansion period and have been for a while. The debate? When will it peak, then recede?
Low unemployment is often seen as the beginning of the end of an expansion phase. Since our unemployment is at a fifty year low you might be thinking, uh-oh. But not so fast, full employment, in of itself, doesn't always mean an expansion phase is over. Vigorous economies can last for years with low unemployment as long as inflation is under control.
Here’s the thing, it is very difficult to predict the timing of economic cycles. If only, right? But what we know for sure is the expansion phase won’t last forever.
Unless you are a business that collects 100 percent of money owed at time of service you’re going to have accounts receivable. But what is an acceptable percentage, especially for the ones past-due? Unfortunately that number differs depending on a number of factors like industry and type of customers you do business with.
The important thing is to track your accounts receivable so you know how it’s going. During an expansion phase, like we are experiencing right now, your A/R should be in fairly good shape. Things to monitor include:
- volume of receivables
- dollar amount owed
- Age of account
If you are experiencing an uptick in any of these areas you might want to tweak your process. Consider the following:
- How quickly are you sending out a bill?
- Are you consistent with your billing?
- At what age do you consider an account past-due?
- Do you have a good process in place to collect past-due accounts?
- If using a collection agency do you send accounts consistently when they reach a certain age?
Granted, there are laws preventing certain healthcare organizations from sending accounts to collections until they reach a certain age, but most other businesses are in the driver’s seat when it comes to deciding how old is too old.
When to send accounts to collections is a subject near and dear to our hearts—we’ve written about it numerous times in blogs and other newsletters. Why? Because as the saying goes, time is money. This is especially true in the collection industry. There is a direct correlation between the age of an account and its collectability. The older it is the harder it is to collect, period.
I’m not telling you not to work your past-due accounts before sending them to collections, quite the contrary. Most of our clients do—some quite successfully! But if you are going to work them do it quickly then send them on.
I get it. You want all the money owed to you. Your business has already incurred the expenses and your A/R represents your uncollected profit. But as frustrating as all of this is sitting on the accounts is not in your best interest.
Right now the economy’s health is strong. By keeping a finger on the financial pulse of your business it can remain healthy even when the economy begins to slump.
Do a debt check-up, stay debt fit and let us help you keep up your financial fitness.