Managing non-paying accounts
You might have taken all the measures: monitoring the creditworthiness and credit risk rating of your customfers, setting up contractual netting agreements, revising your credit policies and credit limits as market circumstances change. Yet those eforts do not rule out the possibility that your customers would fail to meet their payment obligations.
Trade credit in the food and beverage sector is, in fact, rife with overdue accounts receivable. Some might be paid after considerable collections efforts from your team, while some keep riding on your accounts receivable with no end in sight.
When faced with such problem accounts, you have mainly two options:
1. Keep the accounts open on the books until they are collected, or they are proved to be uncollectible 2. Write off the accounts
The first option means continuing chasing the outstanding invoices, and accepting the fact that they inflate your accounts receivable portfolio and force your days sales outstanding (DSO) up. The second option means putting an (impermanent) end to the ordeal of collections, and keeping your accounts receivable portfolio clean.
With the majority of food and beverage companies deeming payment collections and handling recalcitrant customers the most arduous tasks of credit management, it is no surprise that they often opt for writing off. However, there are underlying reasons that you might want to consider before deciding to write off every long-overdue account.