COLLECTION EXPERIENCE - Working Capital Management

In addition to setting the credit standards, credit period and cash discount policy, it is also important for the company to design the collection policy and procedures so as to speed up the collection as and when they become due. What would the company do if the customers do not pay within the set credit period? In this regard the company has to assess the chances of collection of the accounts receivables by putting some effort. If by putting small effort the chances are that the customer will pay his bill are high, then the company should go ahead with that much of effort. In a situation where the chances of collecting the money are considerably less, then the company should explore other ways of collecting the money. The company can use a number of methods to speed up the collections. Letters and telephone calls are the easier one and least expensive. The company may design a policy of sending a letter few days before the payment becomes due. Depending upon the situation, the company can call the customers on telephone just before the due date. A visit to customer may prove to be effective when the bills are overdue. Legal action should be treated as the last resort. Before that, the company should try to understand the problems of the customer and if the company finds that the integrity of the customer is at doubt, they should resort to legal action. On that basis, the company can find out whether the particular debt should be treated as doubtful and should be written off or not.

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