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What happens when there is a delay in collecting accounts?

Cash flow is the engine that drives businesses large and small. Delinquent accounts are often the brakes that bring companies to a screeching halt. The economic exigencies of recent years has pushed many companies to extend the time they will permit receivables to age prior to instituting formal collection efforts. Based on a survey of members of the Commercial Collection Agency Section of the Commercial Law League of America (CCAS), and information supplied by the U.S. Department of Commerce, this "loosening" of payment requirements may be severely impacting on companies' cash flow and bottom line.

According to the survey results, the probability of full collection on a delinquent account drops dramatically with the length of delinquency. For example, even after only three months, the probability is that you will collect only $.90 of each dollar delinquent. After six months, only $ .67 of every dollar will be collected. And after one year, the best expectation is that only $ .46 of every delinquent dollar will ever be collected.

The results of the surveys clearly demonstrate the critical importance of taking positive action when an accounts receivable ages past its due date.

The chart below was updated on 7/25/01 and is based on the combined experience of the members of the Commercial Collection Agency Section of the Commercial Law League of America.

The chart graphically illustrates the critical importance of taking early action when an account receivable goes past due as, even after only three months, the probability of collection drops to 73.1%, and after six months to 50%. At one year past due, there is a 75% chance that the delinquent account will never be collected.