There’s a saying that the definition of insanity is doing the same thing repeatedly and expecting different results.
Ever feel like that describes your world in accounts receivable management?
If so, you sure aren’t alone.
Year after year, I see businesses following the same patterns.
Reviewing aging accounts in December, making bold plans for the new year. Plenty of optimism and excitement. Everybody’s gung-ho!
Then, watching those plans gradually unravel as daily operations take over and the wheels slide into the old ruts.
But truly effective accounts receivable management is NOT a once-a-year planning exercise. It’s an ongoing process that requires consistent attention and adaptation.
By implementing a comprehensive, year-round approach, you can protect your cash flow and maintain healthy business relationships regardless of what stunts the economy pulls and how badly your customers behave.
Assessment: Understanding Your AR Health
Look, before you can fix something, you need to know exactly what you’re dealing with. It’s like going to the doctor — you need those vital signs checked.
In the world of accounts receivable, we’ve got our own vital signs to monitor:
Days Sales Outstanding (DSO) — fancy term, simple concept. How long are folks taking to pay you? If this number’s creep, creep, creeping up, you’ve got storm clouds on the horizon. Don’t wait for the raindrops to gather supplies for your boat.
Collection Effectiveness Index (CEI) — yeah, another acronym, but this one’s your best friend. It tells you the real story of how good you are at getting those dollars in the door when they’re supposed to be there. Not three months later. Not “eventually.” By the due date.
Aging Reports — boring name, critical tool. These reports are like your business’s crystal ball. 🔮 They show you which customers are sliding into trouble before they’re in too deep. And trust me, catching problems early is a whole lot easier than trying to fix them later.
Prevention: Building Your Defense
Here’s the thing about collection problems — the best ones are the ones that never happen. Mind-blowing, right? 🤯
Let’s talk about building your fortress:
Credit Checks — Yes, I know. When you’re excited about a new customer, the last thing you want to do is pump the brakes for a credit check. But trust me on this one — five minutes of prevention beats five months of collection headaches. And here’s a pro tip: partner with a collection agency that offers credit reporting services. We’ve seen it all, and we can spot the red flags while they’re still tiny. And we get you maximum leverage when you’d otherwise have very little.
Clear Payment Terms — We’re not talking about burying the details in fine print nobody reads. Spell. It. Out. Make it crystal clear. Get them to acknowledge it. Because “I didn’t know” is a top-10 excuse in the late-payment playbook, and a common denominator in disputes.
Digital Payment Options — It’s 2025, folks. 😲 If you’re still waiting for cheques in the mail, you’re making this WAY harder than it needs to be. (Yeah, the old postal service is not so much about “Neither snow nor rain nor gloom of night anymore…)
The easier you make it to pay, the faster you GET paid. Simple as that.
Response: When Things Go Sideways
Let’s be real — even with the best prevention, some accounts are going to go off the rails. It happens. What matters is how you handle it.
Here’s your game plan:
Early Intervention — Those first 60 days? They’re golden. (We have a saying, 60 is the new 90 in debt collection.) After that, your chances of collecting drop faster than the puck at Centre Ice. Don’t waste them playing “nice guy” while hoping things magically improve. 🤞
Get on ’em. Stay on ’em.
Professional Partnerships — Here’s the straight-up: get to know a collection agency BEFORE you need one. I know what you’re thinking: “Why would I even think about collections when everything’s fine?” Simple. Because when things aren’t fine, you don’t want to be speed-dating collection agencies while your receivables are aging faster than granny in the sun.
Documentation — Listen, memory is tricky and “he said, she said” doesn’t hold up anywhere that matters. (What did I just say? Good, just checking.) Document everything. Every call. Every promise to pay. Every excuse. Trust me, when it’s time to take serious action, you’ll thank yourself for keeping those receipts and notes.
Adaptation: Rolling with the Punches
Here’s something they don’t teach you in business school: the only constant is change. Your AR strategy needs to be as flexible as contortionist Claudia Hughes (check her out some time). Here’s how:
Quarterly Check-Ins — Not annual. Not “whenever things look bad.” Quarterly. Put it in your calendar. Make it non-freaking-negotiable. Look at what’s working, what isn’t, and what needs to change. Now.
Economic Reality Check — Keep your finger on the pulse of what’s happening in your industry. Are your customers’ customers paying slower? Are costs rising? Interest rates doing weird stuff? This isn’t you being an economist — but knowing if that light at the end of the tunnel is glorious daylight or the Bad Debt Express.
Team Training — Your staff needs to know the game plan. All of it. When to push, when to pull back, and when to call in the pros. Regular training ain’t a “nice to have” — call it your insurance policy against costly mistakes.
Building Your Receivables Collection Dream Team
Here’s where I’m going to challenge your thinking: stop seeing collection agencies as the bad guys 👹 you call when all else fails. That’s kinda like only calling the fire department after your house is completely engulfed in flames. At that point, the account is torched.
A good collection partner can:
- Spot trouble before it grows teeth and starts biting you
- Show you tricks of the trade that keep money flowing
- Step in seamlessly when an account needs that extra push
- Keep you out of hot water with compliance issues you didn’t even know existed
Action Time!
Let’s wrap this meaty article up with some action. Right now — yes, right this minute — you could be:
- Taking a hard look at those AR numbers you’ve been avoiding
- Updating those dusty credit policies
- Getting to know a collection partner who can have your back
- Marking your calendar for those quarterly reviews
- Getting your team up to speed on making this all work
Remember: hoping payments will magically improve is not a strategy. It’s not even a believable fairy tale. SORT of like doing the same thing over and over while praying for different results.
Ready to break the cycle?
Let’s talk about how MetCredit can help you build an AR strategy that actually works — not just in January, but all year round.
