Your agency can use technology to get control of accounts receivable. The procedure described here can be working in your office tomorrow.
The key to successfully implementing this procedure is creating a workable plan that makes the most of the accounts receivable segment of your computer's accounting software. It follows four steps.
(1) Define an aged receivable. This is not as easy as it sounds. Obviously, any premium that goes past the effective date of a policy is an aged receivable. But do you want to know everything that is more than one day old, or do you want to give your clients a grace period before you begin your collection process? This will be different in every agency based on the complete plan.
Many agencies notify insureds at least 60 days before renewal. This gives them 60 days to be aware that their premiums are coming due, giving no excuse for delaying receipt of payment. At the same time, some clients are not going to have the money in the office the day it is due. You may want to know who has not paid their premiums toward the end of a 30-day period, any premium that is 28 to 29 days old. This time frame allows the client one more chance to pay, and you have enough time to send policies back for cancellation with evidence of your collection efforts.
(2) Know what your clients owe. This scenario may sound familiar to you:
Sally, a commercial lines CSR, manually prepares a paper invoice, or "dummy bills," her accounts. She sets up a diary to see whether the dummy bills have been paid, but the information is not put into the system. If Sally's diary indicates that a client has not paid, she sends a second request for payment. Most of the time, that's as far as it goes. Assume a policy that has an effective date of January 8 arrives in the office March 8. If you have collected no money, the down payment and first two installments were due. Of course, the client probably won't come up with that much money, so he will expect you to carry the balance for the year.
Throw away all your procedures for dummy billing. Why? A dummy bill does not hit the accounts receivable program on your computer. And when the decision is made to know about all premiums in your office that are 28 to 29 days old, how are you going to know which ones are beginning the aging process? Remember, you need to know what your clients owe, and the only way to know that is to have the premiums hit your accounts receivable.
The solution? Put bills in the system when you issue binders for all agency-billed policies. This is the only way to get a true picture of all premiums due your agency at any one time.
Let's review the previous scenario with these new procedures.
Sally bills her accounts when she issues the binders. That is all she has to do! Remember, when she uses this procedure, the system automatically keeps up with the aging of all premiums due. Now that you know what your clients owe, how do you get control over your receivables?
(3) Supervise your receivables. First, change your system's aging periods to reflect what you consider to be an aged receivable. Change the default for the first aging period, most often 30 to 60 days, to 28 to 29 days, or whatever time frame you prefer. The default time span for second and third aging periods is 30 to 90 and more than 90 days.
After changing the aging periods, the next step is to decide who in the office is going to control collections. It is important to give one person the task of collecting premiums. CSRs and producers should be responsible for billing the client, but may not be the best people to collect the aged receivables. It is easier for everyone if there is one person who knows exactly what is happening on collections. It is also important that no one else in the office run an aged receivable report without notifying that person.
The designated collection person should run a daily aged receivables report to see which clients have fallen into the first aging period. The clients who do should get a collection letter sent to them that day.
(4) Automate your collection letters and procedures. Create a collection letter that you would feel comfortable sending to anyone whose account reaches your first aging period.
Send a collection letter to anyone whose account reaches 28 to 29 days old. This is imperative if you are going to reach your goal of having no aged receivables. With this in mind, with your daily aged A/R report in hand, send your collection letter to each client whose account is in the 28- to 29-day-old period, and put a reminder in the system diary. Give your insureds ten days from the date of the letter to pay.
If payment is not received at the end of the ten-day period, send a notice of cancellation. How else can you let them know you're serious? Repeat this process every day.
Get serious about collections and set up some guidelines. With proper management and full use of your computer's capabilities, it will work, and you can have zero receivables at the end of every month.