Question

Each organisation will have procedures relating to the collection of money and to recovery plans. Briefly explain what a recovery plan is and when it might be actioned?

Answer 1

Debt recovery,ie. Collection of receivables is important for every business to maintain its cash flows with-in as also to meet its obligations.

This is really a tricky area ,as there needs to be maintained a delicate balance between money recovery and relationship with the customer.

First in any debt recovery plan, is talking it over with the customer, in-person,over phone or letter/e-mail--gently reminding him of the overdue account --giving him an opportunity,in case he has missed inadvertently.

Sending him a letter of demand ,retaining a copy to facilitate legal action,in future , if in case ,the customer fails to honour his commitment even after repeated reminders.

Delegating to the collection- agents ,appointed for some limited purpose, for an agreed collection fee.

Outsourcing the entire receivables-collection ,in general, so that cash inflows can be guaranteed .

All these debt-recovery plans must be put in place , taking into account the costs involved and the opportunity cost of interest lost or gained ,by adopting such methods.

These are initiated only when sizeable amounts of money are locked up in receivables ,well beyond the due dates--which hamper the working capital situation within the business.