Accounts Receivable: Speedier Collection
It's a fact of corporate life: when interest rates go up, collection starts to slow down.
But Art Allen, the CEO of Allen Systems Group, a $16.1-million software manufacturer based in Naples, Fla., had no plans to succumb. "As soon as the Fed started to raise rates we restructured our entire collection effort. We didn't wait for the slowdown to start happening."
His preemptive strike worked. " Before rates started to rise, back in 1993, our average collection took 61.4 days. We were able to shorten that to 44.83 days, despite all the rate hikes that have taken place.
"We improved our collection-tracking capabilities by taking advantage of some options that had always been possible on our computer system -- we just had never tried them before." Here's how Allen accomplished a collection miracle:
· Before mailing invoices, accounts-receivable staffers update the computer with information they get from telephoning clients to make certain all mailing addresses are correct and that the bills have been approved. They also ask clients how long payment typically takes. That information is then entered into computer records.
· A few days after the invoices are mailed, the company places follow-up phone calls to clients to confirm that the bills have been received and to ensure that payment is still on target. Faxed copies of invoices go out to clients who don't already have the mailed versions.
· On the anticipated date of payment, if a check has not been received, staffers call again to find out what went wrong.
Allen is more than satisfied with the results. "Faster collection has freed up so much more cash, we've been able to pay down our corporate debt. And that makes real sense, since rates have gotten so high." He expects to be debt- free by the third quarter of 1995.* * *