Cash flow is the engine that drives businesses large and small. Delinquent accounts are the brakes which bring companies to a screeching halt. In recent years, the tenuous nature of the economy has pushed many companies to extend the time they will permit an account receivable to age prior to instituting formal collection efforts. Based on a recent survey of members of the Commercial Collection Agency Association of the Commercial Law League of America (CCAA), this "loosening" of payment requirements may be severely impacting on companies' cash flows and bottom lines. 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 73%. After six months, the probability of collecting drops to 57%. After one year, the chance of ever collecting on a past due account is a dismal 29%. The results of this survey clearly demonstrate the critical importance of taking positive action when an account receivable ages past its due date. Companies must take a hard line on past due receivables, and turn to professional help when their internal efforts do not prove successful. What can a company do, internally, to minimize and better control problem accounts?

DON'T ASSUME. While there are usually established credit practices in every industry, there are also differences. It is important that your customers know what your credit policy is in order to eliminate misunderstandings. Reiteration of that policy, when a payment is first overdue, is the first step in facilitating payment.

KNOW YOUR CUSTOMERS. In today's economy, no company should extend credit without ascertaining the customer's reliability. In the event, however, that records indicate irregular payments, that account should be kept under close scrutiny, with immediate follow-up even a week after a payment is delinquent.

KEEP CREDIT RECORDS CURRENT. Companies are not static enterprises. Changing markets and management directions can quickly alter the health and stability of a company. Keep abreast of trade reports on specific companies, especially those which are your current customers or potential customers.

REVIEW AND TIGHTEN YOUR COLLECTION PROCEDURES. Periodic review of collection policies and procedures is always beneficial. Unforeseen events can never be eliminated, but you minimize your company's chance of loss by rigid adherence to your policies.

DISCOURAGE EXTENDED PAYMENTS. Be very particular regarding which customers are permitted to use extended payments. Too many will not only endanger your company's cash flow, but also lead to undesirable precedents as well.

ACCEPT PARTIAL PAYMENTS ONLY WITH FINAL PAYMENT COMMITMENT. While partial payments may show "good faith," and part is better than none, the best practice is to acknowledge part payments but demand a commitment for the balance.

SHORTEN THE COLLECTION SCHEDULE. Shorten the period, after a customer is late with a payment, for continued extension of credit.

KEEP COMMUNICATION OPEN. Make sure you are getting through to the right person - the decision maker. If a visit to the customer is necessary, do it.

RESOLVE DISPUTED MATTERS QUICKLY. If your customer is using a dispute over quality of merchandise or service, price or delivery as the basis for non-payment, attempt to reach a mutually agreeable settlement promptly. If a customer is withholding a substantial payment over a minor dispute, insist that the undisputed portion be paid immediately. Your judgement will tell you when you have exhausted all the internal means at your company's disposal to negotiate a satisfactory payment. However, based on the survey quoted at the beginning of this article, if your efforts do not bring results in the first 60-90 days, then you should strongly consider seeking the help of a professional collection agency.

Enlisting the services of a commercial collection agency which is a member of the Commercial Collection Agency Association of the Commercial Law League of America is a good place to start. These agencies must all meet the following criteria:

• Be licensed in the jurisdictions in which they do business.

• Maintain a bond in the minimum amount of $300,000 for the protection of the companies they serve. Many member agencies maintain a surety bond in the amount of $500,000 or more. - Maintain a separate Trust Account into which all monies belonging to creditors are placed.

• Subscribe to a strict Code of Ethics designed to protect creditors as well as debtors.

• Be an established agency in business for five years or more.

• Provide timely status reports on client claims.

• Attend educational forums and meetings throughout the year which provide updates on the latest rules and regulations pertaining to the collection industry, as well as supply information on new techniques and methods to streamline and improve the collection process.

Turning to a collection agency should not be "a last resort." A professional agency, whether or not a member of the CCAA, will be better able to serve you the earlier it receives your claim. Most importantly, working early with a collection agency will help you realize the maximum dollar recovery on your past due accounts while safeguarding your on-going relationships with your customers.