Foreseeing Claims Against Accounts
Account receivable funding. Here you have a difficult choice. There are arguments for and against going the collection agency or small claims court route. On the one hand, collection agencies are, in fact, in the business of getting people to pay. Small claims courts only win you a judgment, maybe a court-supervised payment plan, but they don't collect the money for you and in fact you may still end up needing a collection agency to collect the judgment. (One friend of mine was surprised when he learned in law school that the courthouse is not like the racetrack. When you win, you can't just walk up to the window and collect your money.)
There are some companies that specialize in funeral collections. People have a visceral reaction about being sued, and there are practical problems as well. Many small claims courts aren't allowed to order more than a few thousand dollars in damages, and some are closed entirely to corporations (or their lawyers).
Yet there may be strong reasons to prefer small claims court. Particularly in small communities, the small claims court may actually provide a friendlier atmosphere than a collections agency, and may be more willing to work out a payment plan. If the customer believes he or she has a grievance that lies at the heart of the unwillingness to pay, the small claims court will provide a place to air it but will rarely deprive you of your fee if it has been legitimately incurred.
If you do use a collection agency, move carefully. Test one on a few accounts and monitor them closely. Your reputation may be at stake. The same goes, of course, for the lawyer who handles your case in small claims court. You may remember that several issues ago we discussed the place of accounts receivable in your overall planning. So to wrap this discussion up and put it in perspective, what should you be planning for your AR's? Ideally, 20 percent of your AR's should be in the first pay period, say 0-30 or 0-60 days. Twenty-five percent is acceptable. More than that is trouble, and watch them carefully for how they age. The longer they go, the less they're likely to pay. Once they reach 120 days or more at the end of any accounting period, it's time to write them off, and the planning target there ideally is zero. Anything over 2 percent is unacceptably high. Think of it this way: Look at your profit margin. How many funerals will you have to sell if you're forced to give one away? If you're horrified by the answer to that question, you'll see why spending a little more time and attention on managing your accounts receivable is like money in the bank.
Account Receivables
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