Good receivable management is usually about understanding customer behavior.
It is also about enforcement of the credit policy.
Your best customers take advantage of discounts and pay early.
Good customers pay within terms.
Fair customers pay inside and outside of terms and sometimes require a telephone call.
Marginal accounts, which make up 5% of the customer base, require 50% of your time, create 100% of your frustration and account for most of the outside collection costs
If the allocation of time and resources spent on delinquent accounts exceeds 50%, then your credit department is in a crisis mode all the time. You are jumping from one fire into the next and just trying to prevent the next crisis.
The keys to getting into and staying in the second quadrant are:
Understand your customer base through statistical analysis.
Get rid of customers and projects that always create crisis and delinquent accounts. Give them to your competition.
Assign important ongoing tasks to good staff. Provide support, deadlines and expectations. Schedule follow-up meetings.
Identify garbage work and get it out of your department.
Outsource collection work. It never ever pays to keep the process internal.
The best way to minimize litigation costs is to have your customer sign an acknowledgement of debt.