“Time is Money” is Truer Than You Think

“Time is Money.” When applied to debt collection, the phrase has gravitas and practical application.

At a customer’s urging, we accept their stall tactic for “a little more time” to pay a past-due invoice. We don’t want to seem desperate, and we want to be helpful and agreeable. Those are all good impulses. What harm is there in waiting? It turns out, a lot.

Good companies understand that debt is an uncollected asset. While the cost of the product or service you sell is fixed, the value of the uncollected debt for that fixed price declines over time. As debts age the chance it will be collected in full statistically declines in value by the day. If there’s a waiting line of creditors, add more time, and subtract more value.

Collectability of Delinquent Commercial Debts
at Time Intervals After the Due Date

*For some industries the due date may be several months after the delivery date.

Time ages fine wines or cheese. They take on flavors and complexity, which increases their value. Time stagnates and shrivels debt. The longer it takes to collect, the longer it will take to collect. The longer it takes to collect, the less likely you are to be able to collect the debt’s full value.

A few years ago an industry-wide survey put a microscope on the relationship between the time a collection took, and how much of the debt was recovered. The results are accounts receivable smelling salts: when debt is 30 days past-due, it has lost ten percent of its value. Three months later your sale is worth one-third of what it was on the day your customer took it away.

If your profit margins are less than 30 percent, you have less than a month to make that collection before it starts costing you money. It’s a cruel cycle that puts pressure on you because now you’re facing a shortfall that affects your operations. Writing off bad debt part of your business plan. You’re already being as competitive as you can be. Increasing price to compensate for losses, or cutting costs to open your margins may affect your product or service.

The survey was taken when times were good and relatively stable, just a few years ago. Export markets are feeling a massive crunch as their financial models have been subject to a variety of forces. Every asset needs to be closely managed, and that includes receivables. The good news is, there’s no time like the present.

The next time you hear, “time is money,” you can nod and smile knowingly. When your customer becomes a debtor, and they ask you for time, what they’re asking for is money. They’re asking you to take on the risk of a drawn-out devaluation of your revenue.

It’s reasonable to make payment terms, and the consequences of failure to pay them, clear. It’s not menacing, it’s simply the terms of the business relationship. If you haven’t already, accounting tools like Wave and Freshbooks send automated payment reminders, including reminders of your agreed terms and payment policies. As soon as the account is overdue, contact the customer to check in and remind them of the due date. If payment is late, give a final warning and get a new firm payment date. If that date goes by without payment, it’s time to call in a professional debt collection agency.

Your payment policy isn’t a poem meant to evoke emotion. It’s an agreement on terms of payment, and if necessary, collections. Well-written terms say everything you’ll ever need to. It’s good business, and it can save you thousands of dollars in wasted time.

Ready to start collecting the right way? Call us at 1-888-291-4490 or shoot us an email because we can help you keep more of the money you’ve already earned.

Author’s note: although the data in the referenced survey may or may not be directly applicable to your business or industry, the prevailing trend can be seen across virtually all sectors. Credit grantors must also consider statutes of limitations which differ by state as well as regional and economic factors that inhibit collection by varying degrees over time. If you have questions, I’m here for you!