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The Gamble:

The decision to extend credit terms to customers is one of the most important calculations any business owner will make.

Do you refuse terms and risk losing the customer? Or do you extend credit and gamble that you'll ultimately get paid?

Every business faces this balancing act. The challenge is determining where the line exists between growing sales and protecting cash flow.

The following observations are based on more than 20 years of helping clients across a wide range of industries recover commercial debt.

The Collection Timeline:

60–90 Days Past Due

• Approximately a 90% chance of resolution.
• Most customers are still communicating and actively operating.

90–120 Days Past Due

• Resolution rates drop to approximately 75%.
• This is often the critical point where immediate action can prevent a long and costly collection process.

120–180 Days Past Due

• Resolution rates fall to approximately 60%.
• Delays become more common, excuses increase, and communication often begins to deteriorate.

When the Warning Signs Appear:

Once an account exceeds six months past due, there is often more occurring behind the scenes than is publicly visible. Cash flow issues, management problems, disputes, or operational challenges may be developing within the company.

At this stage, resolving the account typically requires substantially more effort and persistence.

When an account reaches one year past due, the odds of collection decline dramatically. By this point, most creditors have already invested countless hours and resources attempting to recover the balance. The opportunity cost alone can become significant.

After 18 months, collection prospects often fall below 10%.

In many cases, accounts payable personnel have changed, records become harder to obtain, and the debtor has developed systems and procedures specifically designed to delay payment and avoid responsibility.

Eventually, the account may approach the applicable statute of limitations, after which legal remedies may become severely limited or unavailable.

Understanding the Debtor:

One of the most difficult realities in commercial collections is that not every debtor is the same.

Some companies are experiencing temporary cash flow challenges and simply need a path to resolution.

Others become what we refer to as "professional debtors"—organizations that have developed a pattern of delaying payment, avoiding communication, and using procedural tactics to postpone resolution for as long as possible.

Determining which type of debtor you are dealing with often requires an experienced commercial collection professional.

Why Specialized Commercial Collections Matter:

The most effective commercial collection agencies are not generalist agencies handling massive volumes of consumer accounts while simultaneously processing business accounts and legal referrals.

A true business-to-business collection firm becomes invested in the outcome. It acts as your legal agent, works directly with the debtor, and is compensated only when the client recovers funds.

The goal is not simply to place a credit bureau report, generate a few collection letters, or quickly refer the account to an attorney. The goal is to resolve the matter and recover money.

The Reality of Past-Due Receivables:

In a perfect world, every customer would honor their commitments and pay their bills on time.

Unfortunately, the commercial world is far from perfect. There are no debtor's prisons, and civil litigation is often expensive, time-consuming, and impractical for many interstate commercial transactions.

That is why businesses must realistically evaluate their accounts receivable.

Allowing a severely past-due account to sit indefinitely while adding finance charges is rarely a recovery strategy. Hoping to collect an additional 18% to 20% in late fees from a customer who has not paid the original invoice is often unrealistic.

Past-due receivables are assets, and like any asset, they must be evaluated realistically.

Our job is to help clients determine the true value of those assets and maximize recovery before time, opportunity cost, and deteriorating collectability reduce that value even further.

 

National Recovery Systems is a trusted partner to recover what’s owed — while protecting your business, your brand, and your bottom line.

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