The Proof

PROBABILITY OF COLLECTING DROPS DRAMATICALLY AFTER ONLY 3 MONTHS DELINQUENT

Cash Flow is the engine that drives businesses large and small. Delinquent accounts are the brakes that bring companies to a screeching halt. In recent years, the sluggish economy has pushed many companies to extend the time they will permit an accounts receivable to age prior to instituting formal collection efforts.

Based upon a recent survey of members of the Commercial Collection Agency Section (CCAS) of the Commercial Law League of America, this “loosening” of payment requirements may be severely impacting on companies’ cash flow and bottom line.

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According to the survey results, the probability of collecting a delinquent account drops dramatically with the length of delinquency. For example, even after only three months, the probability of collecting a delinquent account drops to 72.2%, .2% lower than just a few years ago. After six months, almost 44% of delinquent accounts will ever be collected. After one year, the probability of ever collecting a delinquent account drops to 28.6%. The results of this survey, which is an update from a similar survey conducted by the Section in 1992, clearly demonstrate the critical importance of taking positive action when an accounts receivable ages past its due date. Mr. Frank Uhlman, Executive Director of the Commercial Collection Agency Section noted, “Today’s competitive economy requires that companies maintain a healthy cash flow with the ability to adapt to constantly changing market conditions. This is true whether you are in the printing industry or a company in the silicon valley.

Delinquent accounts, if they are permitted to age, can wreak havoc on a company’s liquidity, as well as tie up management and staff time that could be put to far better use. Companies must take a hard line on past due receivables, and turn to professional help when their internal efforts have not proved successful.” The survey polled the over 100 members of the Commercial Collection Agency Section, who in aggregate handle a substantial portion of claims placed with professional commercial collection agencies in the United States. In 1994, the member agencies of the CCAS handled over $3.4 billion in commercial claims.

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