Cutting Collection Costs & Manages Your A/R & Debts Properly?

Mr. Benedict Wong is the Managing Director of Total Credit Management Services HK Ltd.


Slow payers, delinquent accounts and collection costs are indispensable realities of any business that offer consumers/buyers to purchase on credit. Extending credit is nowadays a strong marketing tool to increase your business and gross sales, but also carries risk!

Managing account receivables wisely and correctly and maintaining effective controls will help to reduce the losses that are often associated with credit granting.

There are some basic rules a credit grantor should follow when extending credit in order to avoid collection problems and costs in the future.

Following suggestions may well be able to assist you when granting and extending credit:

• Make sure there is a clear understanding of the credit terms between your company and the consumers/buyers when granted. Results of this mistake are costly to both parties.

• Maintain a portfolio (credit report) on every account. Knowing whom you are granting credit to, its business status and trend, paying habit, company structure, legal status, ownership and management. This is vital to your coming accounts receivable, especially when collection of past due debts or bad debts is need.

• Maintaining accurate and up-to-date records, including consumer background information, account history and all recent account activity. This can be done on a periodical update conducted by you or credit reporting agent.

• Do a periodic age analysis of every outstanding account including the name, amount owed and the age of the account.

• Identify and respond to bad debts early, act promptly and decisively. The older the debt, the less likely you or your collection agent is able to recover.

• Establish a collection schedule and follow each step fully before moving on to the next.Review the schedule and see whether it works, seek advice from credit management specialists if your schedule does not work.

• Consult a professional collection service and utilizing collection service can save you time and money, and will often have more effective results. Collection agencies are normally servicing on a “no collect no commission basis”.

• Never place an account with more than one collection agency. You can avoid confusion by keeping the account with only one agency.

• Select the right collection agency. Most of the professional and well managed collection agencies have established stringent code of practices and operation and are members of domestic and/or international associations. In Hong Kong, for example, The Hong Kong Credit & Collection Management Association (HKCCMA) is one of those in the world and the only one in Hong Kong. Professional associations maintain code of practices and independent ethics committee to investigate and handle all kinds of complaints. Blindly using unqualified and non-professional collection agencies will harm your reputation and reduce your recovery.

All credit grantors suffer from some debt losses. Creditors who can keep their costs to a minimum can pass the savings on to customers. Most importantly, a well management of your cost strengthens your business and competitiveness!