Category: Credit Management

Collection Agency Tips, Collection Management, Credit Management, News

Statute of Limitations

Statute of Limitations by State For Commercial Collections

The Statute of Limitations for lawsuits varies by state, and runs anywhere from 3 to 15 years, after which the debt is “time-barred,” and you cannot sue. 

You should use every legal means at your disposal, of course,  but if you wait too long and rely on a last-minute lawsuit as a hail-mary effort to collect what is due, you may be very disappointed. Time is not on your side.

Inevitably, the action will be stretched out, and litigation will be very expensive. The older the debt,  the more convinced a debtor is that they will never have to pay, at least the full amount, and the more the claim will be subject to made-up disputes, and you will have great difficulty finding witnesses to testify.  

And, of course, the present value of a possible recovery years later if you prevail in court and the debtor is still in business when you get a judgment is much less than the amount owed.

  • Never let your receivables age to the point you are concerned about the Statute of Limitations.
  • We recommend you use your commercial collection agency to negotiate the best deal they can, and then move on to new business.

Below is a rough guide only, and not legal advice. You will need to know when the statute of limitations begins to run, and the events that may occur that will delay it. The list below is indicative only but should be of some guidance to you; it does not cover government, injuries or property damage. Always check the current state statutes to be sure, and here is a link to a site with more detail if you need to do some research.

ContractsContracts
StateWrittenOralStateWrittenOral
Alabama66Montana85
Alaska33Nebraska54
Arizona63Nevada64
Arkansas53New Hampshire33
California42New Jersey66
ColoradovariesvariesNew Mexico64
Connecticut63New York66
Delaware33North Carolina33
DC33North Dakota66
Florida54Ohio86
Georgia64Oklahoma53
Hawaii66Oregon66
Idaho54Pennsylvania44
Illinois105Rhode Island1010
Indiana106South Carolina33
Iowa105South Dakota66
Kansas53Tennessee66
Kentucky105Texas44
Louisiana1010Utah64
Maine66Vermont66
Maryland33Virginia53
Massachusetts66Washington63
Michigan66West Virginia105
Minnesota66Wisconsin66
Mississippi63Wyoming108
Missouri105

 

If you have aged accounts, call us for advice, or start to start debt collection on your behalf.

Accounts Receivable, Collection Management, Credit Management

Decision Gridlock Causes Bad Debts

Eliminate Collection Gridlock to Reduce Bad Debts

Frauds are rare. If you perform an easy credit check, you will have very few out-and-out scams, which we’ll define as businesses that order your products, knowing that they will never pay you. The odds of getting your money in these cases is nil.

Chronic Slow Pays. The many persistent slow payers require constant attention, so they do not age-out to the point you consider them bad debts.

If you allow customers to pay very slowly, they will order more product from your competitors rather than have to catch up. If ignored too long, they will become your “uncollectible” or “bad debt” losses.

 

Train Your Customers To Meet Your Expectations

 

Train chronic slow payers to avoid bad debts (and get future sales) by (1) starting your collection efforts at the due date, and (2) if not paid after 90 days of pursuit, assign the debt to a collection agency. While this collection schedule might seem aggressive to some, it is the only way to avoid the otherwise inevitable losses. Plus, if you outsource the problem accounts to an agency, you can focus on current, higher-value accounts receivable.

A reality check. Many collection departments allow small debtors, and sometimes big ones as well, to get quite old due to lack of staff or focus until they are months past due. On top of that, they often then sit in limbo for months more to avoid recognizing a bad debt or making a decision.

The Big (non) Secret to Reducing Bad Debts:

 Don’t let accounts get so old before assigning them to a collection agency.

If you act quickly, you will collect your money more often than not. If you delay, you will more than likely write off 50-100%. The following two scenarios are constant frustrations to collection agencies, and for good reason:

A creditor holds back accounts until they are so old that they are uncollectible.

A creditor delays placement worrying about the collection fee instead of the amount that could be recovered, and they end up with a 100% loss instead.

Collectibility Decreases With Age

 

You already know this, but this chart is an excellent reminder to address slow pays more quickly.

 

 Not every debt is collectible, but, on average, it is 200% more likely to be collected if assigned at 90 days vs. 360 days.

Avoid Collection Gridlock with a Collection Policy

 

The best way to avoid debt-placement gridlock and the resulting losses is to establish a written company collection policy, and stick to it. Here’s a simple example:

Collection action for accounts in the small account risk category will commence as follows:

  1.  10 Days past due: A collection email #1 when the account is 10 days past due.
  2.  20 Days Past Due.  If the customer has not responded or made a promise to pay and followed through on it, a second call will be made, with email #2.
  3. 30 Days Past Due. This communication will advise the customer we need payment in 15 days or we will have to hold orders. This will be reinforced with email #3.
  4.  60 Days Past Due. The account is escalated to the manager, who will make a “final demand” before placement with a collection agency. Email #3.
  5. 75 Days Past Due.  If no satisfactory resolution, Certified Letter #4 will be mailed,
  6. 90 Days Past Due.  the account is placed with the collection agency.

Fast Quiz Conclusion

 Is Scenario A or B more likely to avoid bad debt?

  1. “This account is uncollectible. Let’s turn it over to a collection agency”.
  2. “This account is aging and not paying. Let’s turn it over to a collection agency before it is uncollectible”

 

 

 

 

Accounts Receivable, Collection Management, Credit Management, News, Order-to-Cash

Leveraging Order-to-Cash For Shareholder Value

Improve Order-To-Cash to Increase Shareholder Value

The Order-To-Cash (O2C) process is an area that that remains largely untapped by many businesses. However, smart and effective management of the O2C process could help to improve business performance and the bottom line. It is no surprise that more and more corporations are beginning to prioritize this strategy for future business success.

Order-To-Cash is complex, thanks to the many cross-functional activities involved in the process. Activities include credit analysis and approval, order management, invoice, billing and collection, cash application and deduction and dispute resolution, as well as analysis and reporting. All of these activities will take place across the organization. However, many companies do not integrate and manage all of these activities as a single O2C process. Read More >

Credit Management, News

Automated Credit Applications

Best Practices – Online Credit Applications
Credit Application Software
Credit Application Systems

  • 80% faster credit approvals
  • 90% less manual work
  • 5% more sales from new accounts

Online credit applications are relatively new and even the simplest offer a browser-based application filled out by the customer and then processed by the creditor (but usually completed off-line, manually).  This may work for very small companies, but companies with large numbers of customers need an automated solution.  A state-of-the-art credit application system from Smyyth’s affiliate Credit2B, has rich, complete features; the easiest way to explain it is:

  1. The customer fills out the online application, e-signs any included agreements, guaranties, forms, etc., and clicks a button to submit.
  2. With 100% automation, Credit2B produces a complete credit file, ready for approval, or using workflow to assign to someone else for action or decision.
  3. The multiple-day process, the manual work, and expense to set-up new customers and approve new orders can be slashed by 80%.

Best-of-breed features are in Credit2B’s End-to-end credit application solution for on-boarding new customers as well as managing existing ones.

“Credit2B ECOS™ delivers an online Credit Application platform that gives us all the information needed for a decision, all in one place. Their solution transformed our multi-day manual process to literally just hours.”  Michael Pettyjohn, Director, Customer Financial Services, Danone

Credit2B’s advanced, fully automated credit application system replaces a mishmash of tools and manual tasks including e-mail, faxes, repetitive telephone calls, instant messaging, credit reports, hard copy files, etc. When you include data from Credit2B’s large creditor network, this results in a “virtuous cycle’, where key information nodes including industry data are always kept up-to-date.

We have streamlined credit management processes, information, communication and collaboration in such a way as to accelerate trade credit transactions.

The benefits are straightforward and the ROI is large.

  • Speed. Accelerate speed of order approvals, reducing the time up to 80%, in many cases from days to just hours. If you save 5 days in new order processing, you are adding a week’s incremental revenues from new customers (2% per year).
    Costs.
  • Eliminate almost all manual work, and the wasteful cycle of follow-up calls, faxes, emails, hard copy forms and letters.
    Accuracy.
  • Get more accurate information direct from the source (the customer), eliminate manual entry errors.
  • Better Credit Decisions from having complete and timely information.
  • Customer Relations. Improve customer service with a “frictionless” process with your branding that eliminates the wait for order approvals.

    Credit2B ECOS™ has powerful features of interest to all credit managers.

  • Dashboard for keeping track of applications, reviews, ratings, etc.
  • Workflow and Calendar guides the process from the point the customer submits the application until you approve it.
  • Credit Bureau Data are embedded in the application system (i.e., Experian, Equifax, Credit2B).
  • Trade References are automatic, including customer-supplied references, credit group experience, and Credit2B’s massive trade database.
  • Bank References are automatic, fast, and complete.
  • Credit and Payment Scores are integrated, with expected payment days.
  • Financials. Customer-submitted and public company financials are included automatically.
  • Automatic Reviews. Based on your rules, the credit file is updated periodically. Workflow, authorization levels, and automated system updates and follow-ups keep your records up-to-date.
  • Credit Risk Control. Keep files up-to-date, with monitoring and system generated updates. For example, refresh financials annually, or adjust credit lines when payment experience changes.
  • Online Credit File is maintained for all documents, reports, and credit decision justification with backup.
  • Compliance, Legal, Signatures. The information you need for legal compliance, including valid digitally signed agreements and documents.
  • Online Sales Tax Exemption Certificate File to keep you compliant.
  • Existing Customers? You can include all of your customers for automated monitoring, updates and periodic updates (such as private financials).
  • Integration with your ERP, and customization for special needs are available.

  • Summary

In summary, if you plan to develop or license even the most simplistic electronic credit application, it will be an improvement over hard copy manual forms. However, to achieve the full time and cost saving potential of this concept, you will need to consider to an end-to-end application such as Credit2B.

Please contact us to arrange a demonstration.

Credit Management, News

11 Trends in Credit Automation

Here are 11 trends you need to know about the future of credit decision automation; many of these are already available in a best-of-class risk management platform. Using Artificial Intelligence (AI), and Robotic Process Automation to replace manual tasks and improve accuracy in B2B credit checking,  the best systems can revolutionize the credit approval process for new and existing customers.

  1. Commercial credit scoring algorithms will use “machine learning” technology to integrate real-time data trends and human decisioning (and even get close to how a company makes decisions).
  2. Commercial credit insights will draw from data open source and community data, enabling enterprises to seamlessly bring together real time business information from disparate sources.
  3. Interactions between trade suppliers and their customers will move from static to dynamic through collaborative credit application processing, enhancing speed and accessibility to highly valuable information.
  4. Global trade interchange networks in industries becomes more automated and seamless through a virtual network, speeding and improving the overall process for references on common customers.
  5. Customer risk analytics platforms will enable every user to customize their experience based on unique portfolios they manage.
  6. Organizations will use their own accounts receivable payment information combined with those of other trade suppliers in their industry to set highly effective cash flow forecasts.
  7. Large ERP and traditional bolt-on software partner systems will be challenged by more flexible and secure cloud systems with configurable software and already-integrated credit databases.
  8. Enterprises will seek commercial credit platforms that seamlessly integrate customer information, trade supplier experiences and public filings across borders, adapting to local standards, language and currency differences.
  9. Company departments will engage collaboratively using connected platforms that seamlessly exchange information and manage tasks through effective workflow.
  10. Users will expect their information to follow them and be available seamlessly on mobile apps making remote work easier.
  11. Business process execution will accelerate, compressing the time needed to complete repetitive functions and make decisions. For example, the time required to onboard new customers using an electronic credit application fully integrated with contracts, signatures, references, credit information, and workflow can be slashed from many days to under a day.

This was supplied by the analysts of our credit risk information affiliate, Credit2b.com.

Please contact us if you would like more information on any of these important business trends.

Collection Management, Credit Management

End of the year – Days Sales Outstanding

Well, here we are again – the end of another year.  While you review your balance sheet all year, December is when you scrutinize it upside down and inside out.  What did you do right throughout the year?  What can be tightened up?  Days Sales Outstanding – or “DSO” – is one of the  metrics that you should be paying close attention to.   Once you calculate your DSO you’ll need to make a few comparisons to determine your department’s effectiveness. You’ll need to compare your DSO to your company’s Best Possible DSO and to Industry DSO Benchmarks. While DSO is not an actual line item on your balance sheet, the  the calculation is simple.

Calculate Days Sales Outstanding

  1. Select a time period and determine the number of days in that period,
  2. Take your total Accounts Receivable for that period and divide it by the total credit sales in that same period.  Multiply the result by the number of days in that period.

[Accounts Receivable / Credit Sales] x Days = DSO

“Best Possible” Days Sales Outstanding

[Current Receivables / Total Credit Sales] x Days =  BPDSO

 

Since DSO indicates the amount of time it takes for you to convert your sales to cash, your goal is the lowest possible number.  The Best Possible DSO  is the same as your terms of sale; that is if everyone paid you on the day  due.  While that is not realistic, the higher the number, the more interest free loans you’re giving to your customers and that translates into less available cash to fund your business, and its growth.  After comparing your DSO to your BPDSO, you also need to compare it to your industry peers and to get that information you need to be part of an Industry Trade Group.

Looking at your DSO once a year may be an eye opener but looking at DSO monthly will provide you with trending and historical information that will be very valuable to you.  

A DSO that is trending higher could be an indicator of the efficiency [or lack thereof] of your collections department.  Is it staffed properly?  Are your people properly trained to speak with your customers about outstanding invoices?  Is it time for some outside help by a Receivables Management firm?  A good firm can assist you with 1st party soft calls as well as traditional 3rd party collection expertise.

Consider the following scenario: If your A/R is $3,000,000 with Net 30 terms,  if you cut your DSO  from 50 to 40 days (20%), you are picking up $600,000 cash. This means you’ll have to get your customers to pay you an average of 10 days late vs 20 days late, hardly an insurmountable task if you work at it.

Many if not most companies use bank financing to for working capital needs. In the above scenario, cutting your DSO by 20% with a proactive and consistent collection campaign reduces the need for $600,000 of borrowing, and also cuts bad debts (since fewer accounts age out for a long time).

Credit Management, News

Automation For New Account Credit Applications

“Back to the Future” in Credit Management

Marty McFly would recognize today’s business credit applications as going back to his grandfather’s generation. Little has changed – until now, that is.

The Credit2B ECOS™ Platform  changes all this, as it completely automates and accelerates the on-boarding of new customers, even integrating industry sector trade, customer trade references and  credit bureau data, and delivering a complete “decision file”.  ECOS is a reinvention of  the manual credit processes that have not changed in many decades.   

In short,  ECOS automates and integrates all aspects of the B2B new customer on-boarding process:

  • Beginning to end decision workflow: Customer -Sales – Credit
  • Applications, Guaranties and Compliance Agreements, digitally signed and filed
  • Financial statements
  • Customer Credit and Bank References
  • Industry trade experiences
  • Major credit bureau information
  • Liens, Filings, etc.
  • Optional bureau analyst guidance
  • Automatic credit review followups

The objective ofECOS is to eliminate the convoluted process and time-consuming work of on-boarding new customers, accelerate the approval of new customers, improve compliance and results, while slashing related overhead costs. TheECOS process starts with the new customer, who inputs and upload the information needed by the creditor, even digitally signing any required documents. All information and documents are retained in a secure file, plus uploaded to client.

In a survey of fifty clients, Credit2B found that over 80% expended significant sales effort, in addition to the credit department for processing  new account applications, with excessive on-boarding delays often as ,long as one or two weeks.  

Credit2B has partnered with Experian and Equifax for integrated bureau data, Docusign e-sign for enforceable digital signatures, and Dow Jones for corporate sanctions compliance, and from the Credit2B network extensive industry viewpoints and trade experiences.

Benefits include:

  • Remarkably faster customer on-boarding, and slashed overhead
  • Reduction of errors and re-work
  • Eliminate paper with secure digital files  
  • Client customized branding
  • Automatic scheduled renewals
  • Eliminate wasted sales representative time
  • Custom workflow and follow-up timelines

For information, contact info@leibsolutions.com, and we’ll put you in touch.

 

(Note: Credit2b.com is one of our affiliated companies)