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Collections Best Practices
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tomer orders database. This is a necessary step since orders will inadvertently
pass through the system if there is not a solid block in the computer on shipments
to a delinquent customer. However, many companies are uncomfortable with
allowing the collections staff to have free access to altering the shipment status of
customers, since they may use it so much that customers are irritated. Conse-
quently, it may be better to allow this access only to a supervisor, such as an
assistant controller, who can review a proposed order-hold request with the sales
staff to see what the impact will be on customer relations before actually impos-
ing a hold on a customer order.
In summary, giving the collections staff access to the open orders database
for customers results in better leverage over delinquent customers by threatening
to freeze existing orders unless payment is made. The use of this database should
be tempered by a consideration for long-term relations with customers; it should
only be used if there is a clear collections problem that cannot be resolved in
some other way.

Cost: Installation time:

7–10 ARRANGE FOR AUTOMATIC BANKRUPTCY NOTIFICATION

It is an easy matter for a collections department to be completely blindsided by a
sudden drop in the credit rating of a customer, possibly resulting in bankruptcy
and the loss of all accounts receivable to that customer. Though a company can
track payment histories over time, talk to other suppliers of a customer, or period-
ically purchase credit records from a credit analysis group, all of these options
require a continual planned effort. Many collections departments do not have the
time to complete these extra tasks, even though the cost of being blindsided can
be very high. They just take the chance that customers will continue to be finan-
cially stable.
Rather than undergo the embarrassment of losing an account receivable
through the sudden decline of a customer, it is better to arrange for automatic
notification of any significant changes to the credit standing of a customer. To do
this, a company can contract with a major credit rating agency, such as Dun &
Bradstreet. This organization can fax or e-mail a notification of any changes to
the status of a customer, such as a change in the speed of its payment, adverse
legal judgments, or strikes, which may signal a decline in the customer’s ability
to pay its bills. With this information in hand, a credit manager can take immedi-
ate steps to shrink a customer’s credit limit and put extra emphasis on collection
efforts for all outstanding accounts receivable, thereby avoiding problems later
on, when a customer may sink into bankruptcy.
The only problem with advance notification of a customer’s credit standing
is that the credit agency will charge a fee for its work. However, the price of the
notification, usually in the range of $25 to $40, is minor compared to the poten-