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As accounts receivables age, they undergo a decrease in value. Even though the individual accounts may rack up interest, the likelihood of collecting the full amount diminishes.
Due to a combination of factors, the account holders become more difficult to collect from as the debt passes from ARM to collections.
The collectability of total debt value decreases at an alarming rate. Based on data aggregated by the Commercial Law League of America, the collectability percentage decreases from 90 percent on the due date to about 50 percent within six months.
Throughout this educational series, we’ll discuss potential factors of the decline in collectability of aging accounts, and provide opportunities for more information in our white paper on the topic.
Accounts receivables are not guaranteed revenue. Most credit-extending companies have millions of dollars tied up in consumer accounts receivables, and the average percentage of collection after more than one year of outstanding debt is 18%, according to data collected by RCM corp.
In the ARM cycle, more regulations are put into effect when accounts are passed off to third-party collections. The FDCPA governs third-party collections, making the likelihood of collecting full amounts from consumers even slimmer. Aging accounts are a unique problem, which necessitate better comprehensive solutions across the marketplace, from first party creditors to collection agencies.
Your customer’s good credit is put at risk when accounts age because they have not paid their debt. To recover money and help your customers’ credit score, it is necessary to have good systems in place to aid communication between your consumers and your credit department.
Make it easy for consumers to pay back their debt, and do not harass or incite fear in the customers. It should be acceptable and easy at any point in the process for your consumers to pay back debt, without having fear of the company or collectors.
Reducing your aging accounts starts with good consumer communication and systems that make it easy for consumers to pay back debt.
When choosing vendors to work with and terms of work, select the options that give you the best chance for success. This means that rather than going with the cheapest option, maximize your opportunity for collections by recognizing that not all consumer contact solutions are built equally. Some solutions will produce a greater return-on-investment, even with more expensive initial costs.
Manual calling is one aspect that makes a difference since consumers are more likely to continue a conversation with a person than a robot. Another aspect to consider is the number of dials included in the upfront cost because it is the number of contact attempts your vendor will make.
The process matters, and when it comes to aging accounts, the speed of delivery matters too.