The do's and don'ts of collections.(Credit Column)

For many companies one of the most important, but least pleasant, aspects of the business are collections. Past due receivables can be the cause of cash flow related problems and missed financial targets, while collecting these receivables can consume significant internal resources. While there is no one solution to this issue, there are a number of basic policies that will help most companies develop an improved collections solution that both reduces days sales outstanding and maintains or even improves customer relationships. What follows is a list of five things a company should do when setting up its collections solution and five things that the company should seek to avoid. It is hoped that firms will be able to look at this schema and determine what elements work best for them-and then employ them.

Do's

Segment the Customer Base

It is often the case that a company's customer base is not a uniform block of individuals or enterprises, but rather is comprised of various subgroups. Each of these sub-groups has its own characteristics and profiles. When developing a collections strategy a company should first segment its customer base and determine which strategies will work with which customers. This will allow the firm to most effectively allocate resources as well as insure that the right approach is used with the right customers-thus helping to maintain positive customer relationships.

Use Dunning Letter Process for Small Accounts

There is a general rule of thumb in business: 80 percent of a firm's customers generate 20 percent of its revenues. For these small accounts it is often not worthwhile to follow up with each one on an individual basis. The efficient firm will utilize an automated process that generates a dunning letter when an account becomes overdue by a certain account. These letters are a low-impact /high-return approach to collections of relatively small accounts.

Automate Repetitive Processes