Despite of firm’s best precautionary efforts in escaping the bad and doubtful debts, there always exist certain number of unpaid accounts on the due date. Three-well-known causes of failure of such payments on the part of debtors (i.e. firm’s customer) can be sited as:
Ø It may happen at times that the due date of payment slips from debtors mind and he delays in making good the payments at the right time.
Ø It may incidentally occur at the time of grant of credit that a firm fails to access and interpret the character, capacity, capital, Collateral and conditions correctly and appropriately.
Ø There may arise a considerable change in the financial position of a debtor after the credit has been granted to him by the firm.
All the above stated reasons compel a firm to formulate a collection programme to obtain recovery or receivables from delinquent account.
Such progarmme may consist of following steps:
- Monitoring the state of receivables,
- Dispatch of letters to customers whose due date is near.
- Telegraphic and telephone advice to customers around the due date.
- Threat of legal action to overdue accounts, and
- Legal actions against overdue accounts.