Overdue account problems are more unlikely to occur if a business conditions its customers from the outset. If you do not enforce your credit terms, you are asking them to be ignored.
Figures show that a debt overdue by one month has a 93.8% chance of being paid.
This drops to 74% after 3 months and down to about 27% after 12 months.
Not only do your chances of collecting an account diminish with time, so does the real value of the dollar you collect.
Industry figures say that the collectable value of overdue accounts reduces to 67 cents in the dollar after 6 months past due, further reducing to 45 cents in the dollar after 1 year.
The value has been reduced by:
- Interest charges on your own overdraft to finance the sale.
- Extra administration costs to monitor the account.
- Opportunities lost from the extra profits that could have been made if you had the money.