Ensuring Collection on Accounts Receivable
Q: I am concerned that some of my customers might default on their payments. What is the best way to make sure that I collect on my accounts receivable?
A: The best way to ensure that you will collect on your accounts receivable is to establish a sound credit and collections policy from the start. Insist that new customers sign a credit application or credit agreement that includes interest chargeable on past due balances and a provision that if the account goes into default and you refer it to an attorney for collection, the defaulting party must pay your attorneys’ fees. If possible, include a confession of judgment clause in your credit agreement. And be sure to contact any delinquent accounts for payment as soon as they become past due. Unlike fine wine, delinquent accounts do not become better with age. The older the account, the tougher it is to collect.