It is extremely important to stay on top of your receivables collections. Falling behind in this area can lead to serious consequences. The longer you wait to collect receivables, the more likely the debtor will avoid payment (either accidentally or on purpose). Late payments eat into your bottom line and can lead to bad debts. Many people feel guilty about asking for money; however, there is nothing more important than getting paid for your product or service. A customer who fails to pay is not a paying customer (1).

• Make sure the entire staff of your company understands the gravity of clear collection practices. Staff needs to document all elements of the transaction process with confirming letters, records of phone calls, and detailed invoices complete with payment terms. This information will be invaluable should a dispute arrive between you and the debtor.
• It is crucial that you do not put off the beginning stages of the collection process. Getting a late start decreases your chances of receiving money at all. Sending a friendly letter or phone call as a reminder will get the ball rolling in your favor. Sometimes debtors lose invoices and need to be reminded, while others will do anything to avoid paying their bills.
• Make a routine. Have prewritten letters ready to be sent out after the past-due date. These letters can be sent at set points in the collection process (for example, seven to fourteen-day increments after the past-due date). You can throw in a friendly phone call or two as a reminder to the debtor that the invoice is past due. Sometimes, customers will make a payment just to get the letters and phone calls to stop.
• In the case of unusual and extenuating circumstances, it is best to work with the customer to establish a fair repayment schedule. Hold to the mutually accepted date and payment method firmly to insure collection process will conclude on time.
• Know when to call an expert. In some cases, you will be dealing with an individual who simply will not make a payment, no matter how closely you follow your collection plan. In these circumstances, the only way to proceed is to involve a professional collection agency. These agencies have the experience and know-how to raise credit ratings, as well as other legal avenues to influence the non-paying customer. Other options include hiring a lawyer or contacting small claims court (2).

Collecting Receivables Less Than $500 
Small accounts receivable are treated with less importance than large accounts receivable. When faced with the prospect of recovering smaller accounts receivable, it is usually counterproductive to go through a collection agency to get your money. Collection agencies usually discriminate against cases involving less than $500 by not spending as much time in dealing with the small case as they should.

• When dealing with small receivables, you must consider the amount of calls and letters sent regarding a late payment that can be made before the transaction loses value completely. Receivable collection of under $500 is usually not profitable to take to litigation due to the cost of this process.
• When backed against a wall, never threaten litigation, except in a small claims court. Small claims is a more believable and legitimate course of action than just plainly telling someone that you are going to sue them.
• The best plan of action is to use psychological means (as opposed to litigation) to get the debtor to send the money to you. Suggest that there could be ramifications to their late payments, such as a negative effect on their credit (3).

References:
[1] http://www.planware.org/workingcapital.htm
[2] http://www.gaebler.com/Tips-for-Collecting-Receivables.htm
[3] http://accounting.smartpros.com/x42057.xml

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