Updated June 2023
For ages, 90 was the benchmark in collections.
Meaning if an overdue account went more than 90 days past due, it was time to send it to professional collectors. For businesses in need of cash, 90 days AFTER the due date had come and gone was a bit of a marathon.
Yet it stood to reason in normal times. You didn’t want to put undue pressure on those hard-won accounts.
And there was logic to the timing. In my industry, we live by the numbers, and statistically, as debt passed the 90-day mark, it became dramatically less likely for the credit-granting business to collect. Ninety days was long enough to indicate there was a real problem somewhere, while not so soon as to look overly aggressive. If the debtor business was aware of the account and had not yet made good on it, either the company was in trouble or there was intent to withhold payment altogether.
That was then, my friends.
Bankruptcies and consumer proposals have increased significantly and all the emergency government subsidies, business tax deferral, and mortgage relief have gone.
Government support packages like the Canada Emergency Wage Subsidy, Canada Emergency Commercial Rent Assistance, and Canada Emergency Business Account were temporary. Municipal business taxes and mortgage deferrals were not forgiven and needed to be repaid—in some cases with additional interest accrued.
Back in 2020, Lou Brzezinski, a Toronto-based lawyer who specializes in business reorganization, insolvency, liquidation, and bankruptcy, predicted that a major spike in bankruptcies was just a few months away.
“We’re going to see businesses that will not survive. Many, many businesses that will not survive,” Mr. Brzezinski told the CBC.
Lou was right.
Despite the massive investment, none of the government measures did much (if anything) to help the biggest problem facing businesses: future cash flow. A series of surveys by the Edmonton Chamber of Commerce showed that the majority of small and medium businesses didn’t have enough cash reserves to get beyond two months of expenses—and nearly 60% said they could go out of business permanently. The fuse was perilously short.
Hence the new 60-day rule. When businesses are in trouble, you are competing against other, often more powerful creditors to collect. If you enter the game in a business-as-usual fashion, you are already at a disadvantage. By being proactive and choosing a great collection agency, you stand a chance.
Anyway you slice it, there is no logic to support waiting as long as you did in normal economic times to send a file to collections. And as those bankruptcies continue to increase, it is the businesses that break out of the norm and are the most proactive who will be paid—while others never will.
Send a memo to your AR team. The landscape has changed dramatically.
And 60 is the new 90.