Cash flow is important to all businesses. Companies do best when they receive money as close to the time of service or transaction as possible. However, in many industries and lines, invoicing and payment delays are standard practice. Occasionally clients and customers have financial difficulties and fail to pay within expected time frames, making collections activities necessary. Although accountants, consultants and finance experts advise companies to stay on top of growing accounts receivable, no law or regulation prevents businesses from waiting until the end of the year to do a major collections push.
Most companies have budgets with target revenues, expenses and profits. Naturally, failing to collect accounts receivable in a timely manner impacts financial performance and can result in failing to meet budget. However, if the time and labor costs associated with collecting are worth more to a company than the revenues generated, saving collections activities for later in the year is the better option.
Accounting for Delays
Businesses that extend credit to their customers and clients usually expected a certain amount of late payment and bad debt. A company that intends to save its collection efforts for the end of the year needs to structure its budgets, forecasts and accounting procedures to reflect that it will carry a larger amount of late payments and bad debt during the first three quarters of the year.
As a rule, the older the payment due, the harder it is to collect. Clients and customers who don't receive reminders when they fail to make payments are likely to forget altogether. Additionally, as people move on with their years, they move into new budgets that may not have funds accessible to pay old, forgotten bills. In some cases, delinquent clients proceed into financial crisis, insolvency, bankruptcy and go out of business -- making it much harder to collect accounts receivable.
Collecting at the end of the year can be difficult. Often, people take vacation around the holidays making it difficult to conduct business and reach financial decision makers. Some companies even close during the holidays. Beginning collection efforts by the first two weeks of December can improve the odds of successful collection. Additionally, collections require follow-ups. Assigning delinquent accounts to specific staff members can help ensure continuity and regular follow-through. Additionally, if accounts receivables are significant, it can be faster to have several people or even a team take on collections duties.
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