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Total Impact of Best Practices on the Collections Function
I have not yet received payment for our invoice number 4762 for $12,500, 151
dated April 12. It is somewhat overdue for payment. For your convenience, I
have attached a PDF version of the invoice, which you may review with
Adobe’s Acrobat Reader software. If you don’t already have this software,
you can download it for free at www.adobe.com. Please contact me if you
have any questions. Thanks!
Converting invoices to the PDF format can accelerate the receipt of cash
from customers, reduce the collection efforts of the accounting staff, and allow
customers to approve invoices electronically. This is a significant, inexpensive,
and operationally elegant way to accelerate cash flow.

Cost: Installation time:

TOTAL IMPACT OF BEST PRACTICES
ON THE COLLECTIONS FUNCTION

This section covers a group of collections best practices that, when used together,
will result in a very efficient collections department. The group does not include
all of the best practices covered in this chapter, for a small number are mutually
exclusive. In particular, outsourcing the collections function does not allow one
to implement many of the other best practices. Accordingly, it is assumed that
collections work is kept in-house, so a number of other improvements can be
implemented.
The recommended best practices are laid out in Exhibit 7.2 in order of the
typical transaction flow that results in a completed collection activity. It begins
with the sales department, which can reduce the amount of customer confusion
by simplifying the product pricing structure. It then moves on to the credit
department, which can preapprove customer credit and standardize the credit-
granting system, both of which result in consistent and reasonable customer
credit levels, keeping the collections staff from having to collect on excessive
sales amounts to customers who are not capable of paying. Finally, it reaches the
collections department, where there are many best practices that can make the
collections task more efficient: lockbox collections, immediate cash application,
unapproved write-offs of small balances, early payment discounts, stratified col-
lections, and automatic faxing of overdue invoices and dunning letters, as well as
automatic bankruptcy notifications. One can supplement these activities with
three databases (e.g., customer assets, customer orders, and collection calls) to
assist in making more effective collection calls. Nearly all of these changes can
be completed in a relatively short time, with only a few requiring significant
investments. Consequently, the activities shown in Exhibit 7.2 can all be imple-
mented in most companies, resulting in a profound difference in the level of effi-
ciency of the collections department.