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The Timely Collection of Accounts Receivable: Part I

An owner of a successful sign shop recently identified his three main challenges in the business

By Mike Raymond

An owner of a successful sign shop recently identified his three main challenges in the business: (1) finding qualified workers, (2) keeping up with developments in sign construction processes, and (3) getting the timely receipt of payment.

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  • An owner of a successful sign shop recently identified his three main challenges in the business: (1) finding qualified workers, (2) keeping up with developments in sign construction processes, and (3) getting the timely receipt of payment.

    Concerning the third challenge, Ken Soday of Sign Center (Orlando, FL) said, “Generally we allow customers thirty days to pay their final bill and probably sixty or seventy percent of them will do that—without actually having a reminder.”

    A slow or delinquent payment by 30-to-40% of a sign shop’s customers is more than a challenge: it represents a cash-flow problem nearly equal to the traditional profit margin of many businesses.

    The use of a standard collection series can improve the timely receipt of payment by your sign shop. A standard collection series has two main objectives: to collect the money owed as promptly as possible and to retain the goodwill of the customer.


    A standard collection series generally involves a six-stage procedure in writing that is used by the business owner to encourage full and timely payment. The procedure must be started promptly, followed systematically, developed with increasing force, adapted to the customers, and evaluated according to circumstances.

    A collection series must be started promptly. The sooner it is started the more likely the collection will be successful. Also, the sooner it is started the greater will be the financial return. The longer it takes a customer to pay the more a sign shop will have invested in its collection efforts and the less the money collected will be worth.

    A regular, systematic handling of a collection series increases the effectiveness of the collection. First, customers tend to respond to a regular and organized effort to solicit payment. Second, office procedures in a sign shop are more efficient if standard procedures exist for collection. More important, a system implies that collection is serious: a seemingly haphazard approach suggests that collection is a low priority.

    Because retaining the goodwill of the customer can be important for potential future business, the collection of the money due must begin as a persuasive process. It begins as a gentle nudge or reminder. Persuasion remains the primary emphasis through four of the six stages of the collection series. The stronger approach of threats is reserved for the urgency and ultimatum stages.

    Just as in the fabrication or installation of signs, a sign shop owner should be willing to adapt its collection procedures. Not all customers are the same. Higher volume or long-standing customers are worth the increased risk of waiting longer for payment. New businesses that are new customers might require more attention sooner.

    Just as procedure may be adapted depending on the customer, the collection series needs to be flexible to take care of unusual or special circumstances. Illness? Accident? Perhaps there is a corporate office across the country that must process your invoice. One value of the standard collection series is that it provides opportunities for such unforeseen circumstances.


    While the standard collection series can vary according to the respective customer and to special circumstances, the six stages commonly include the following sequence: Notification, Reminder, Inquiry, Appeal, Urgency, and Ultimatum.


    The assumption of the Notification stage is the customer will pay promptly. Hence, the notification is a statement or a bill that identifies the sign product and/or sign services provided, the amount due, the date due, and the agreed upon terms.

    Standard billing forms are used. It is a mass mailing and does not include any personal remarks or encouragement. The idea is to present a “business-as-usual” tone. You do not wish to give the customers the impression that you fear they are “deadbeats.” Such an effect is not good for future repeat business.


    If the Notification does not result in payment, this stage presents the assumption that the customer intends to pay but forgot. The number of Reminders may vary depending on the customer and the circumstances.

    The Reminder stage of the collection series should motivate most of the customers who have not yet submitted payment. The assumption is that little or no persuasion is needed.

    You might wish to use any one of four types of Reminders. Again, the tone is “by the way,” and the focus is goodwill and cost-effectiveness. One type of Reminder is a copy of the Notification with a stamped or handwritten note such as “Second Notice” or “Please Remit.”

    A second type of Reminder is a brief form letter. Written to be used with an array of customers, the short form Reminder is saved in a computer file. When a form letter Reminder is needed, you load the file, fill in the customer’s name and the amount due, and drop it in the mail. The letter is clearly a short form, light in tone, and positive.

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    Sometimes the brief form letter even can be like a gadget letter, such as the following:

  • Does this note from ABC Sign remind you of the banners we delivered to you last month?
  • Yes, it’s been over a month, and there’s one more detail needed to finish the deal.
  • If you will take just a minute right now, use the enclosed postage-free envelope to send us the payment of $XXX.XX for those banners. We at ABC Sign appreciate your business.
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    Occasionally, the short form letter is not enough of a Reminder. Depending on the circumstances, a personalized letter might be the best Reminder for collection. One collection letter strategy is to include an indirect Reminder in a letter mainly about something else. Frequently, this Reminder letter seems primarily to serve as a sales letter with a collection add-on. For example, the following collection message is sandwiched between appropriate sales promotion.

  • With fall approaching, the Smithville Historical Society is well into its planning of the annual fall festival. Certainly this planning includes the Society’s high-profile advertising campaign.
  • In previous years, you have enjoyed the success that comes from advertising with big banners over the major thoroughfares into Smithville. So that ABC Sign might design, fabricate, and install these banners in ample time to fully advertise the October festival, we recommend that your Publicity Committee contact us as soon as possible.
  • When you mail your payment of $XXX due on July 1 for the Spring Centennial Celebration banners, let us know how many banners you would like to have for the fall festival. That way we can block out enough time to ensure your getting the banners befitting such a community event.
  • If ABC Sign can serve any other sign needs of the Smithville Historical Society, please call Bert Jones at 555-5555. The entire community enthusiastically anticipates all of the Historical Society’s special events.
  • The appeal of such a personalized letter is that it offers sales promotion and avoids the danger of offending a prized customer. The downside to such a long and personalized letter with the buried message is that collection is hidden and de-emphasized and that it takes time and money to send it.

    An alternative is to place the collection element at the beginning of the letter. This reduces the appearance of deception: this is a collection Reminder. Once that is established, then the sign shop can assure the customers they are special and include some appropriate sales and/or goodwill building.

    For example, consider the Smithville Historical Society Reminder letter using the second approach.

  • Will you please take a moment to send us a check for $XXX, the amount due on July 1 for the Spring Centennial Celebration banners?
  • Then the Publicity Committee of the Smithville Historical Society can begin to make plans for the coming fall festival. ABC Sign is eager to be a major part of the advertising effort for your popular event. The sooner your committee works with our banner department the better we will be able to design, fabricate, and install the signs they wish.
  • If ABC Sign can serve any other sign needs of the Smithville Historical Society, please call Bert Jones at 555-5555. The entire community enthusiastically anticipates all of the Historical Society’s special events.
  • The second letter is more direct, much shorter, and more likely to move a customer to make the payment. However, it does not sound as special or as personal for an important customer or a customer with a large outstanding debt.

    The fourth alternative for the Reminder represents an approach somewhere between the billing statement with a note and the personalized letter. It is the form letter without gadgets, without sales promotion, and without much attention to goodwill.

    It is a “the-ball-is-in-your-court” letter. The form letter is direct; it is about the customer; it asks for the money; it takes less time to write.

    Consider the following example:

  • As a successful businessman, you know what a good credit reputation means. Your business has one.
  • That’s why ABC Sign immediately extended you 30-day credit on your recent order. We know that the reports of your excellent credit reputation were correct. That’s why we know you’ll send us payment of $XXX due July 1 for YYY.
  • Usually the Notification and Reminder stages take care of most delays in the timely receipt of payment. These two stages represent the first wave or preliminaries in the standard collection series.

    The second wave includes the Inquiry and the Appeal stages; the last wave is the Urgency and the Ultimatum stages. The later stages of collection require more personal attention. This attention comes through more personalized letters. These letters work on the basis of different assumptions about the customers and use different strategies in their efforts to collect payments owed.

    Next segment will focus on the second wave of the standard collection series.

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