Congratulations. You and your organization have made it through some of the most volatile times anyone can remember. And though many businesses and professional practices have seen revenues rebound in 2022, the good news is tempered by a sense that we’re not out of the woods yet. 

As you strategize for 2023, here are 3 powerful reasons to focus on the health of your receivables in the months ahead.

1. Consumer and corporate defaults will rise over the next 12 months. 

The worst inflation we’ve seen in 40 years has prompted the Federal Reserve to take dramatic measures to bring prices down. And while things seem to be cooling off somewhat, the higher cost of goods, services and money remains a triple threat for many businesses and consumers. Those who’ve struggled to meet their obligations for a while now are likely to fall deeper into debt in 2023. 

You don’t have a crystal ball that will tell you which clients will fail to pay what they owe – or what the total impact on your organization’s cash flow and net profits will be. But taking time to evaluate receivables now and stratify accounts for fast attention will help you minimize the impact on your bottom line. 

2. Past-due receivables cost you more than you think. 

Unpaid invoices take a nasty bite out of cash flow, making it harder for you to meet your own obligations. But you may not have quantified the other costs of managing bad debt, such as fully loaded personnel costs, outsourcing, overhead, systems and other hard expenses related to your collections activities. 

Consider the time and effort needed to set collection policies and procedures, analyze past-due balances to determine which to write off and which to pursue, negotiate with angry, defensive debtors and keep track of what they promise to do (and often fail to do).

Even a modest bump in past-due receivables might force you to expand work schedules, hire more staff or seek supplemental training to sharpen your team’s collection skills. The growing workload will add to everyone’s stress – which can blow your hiring and training budget when employees who’ve had enough walk out the door. 

3. Resolving past-due amounts quickly will help you maintain positive relationships with clients and the community.

When past-due amounts go unsettled, goodwill can evaporate quickly. Nearly everyone who has ever attempted to collect a business or professional debt can tell stories about the time they “lost it” when provoked by a stubborn, deceptive or threatening client. 

But staying calm and objective is crucial. You’re far less likely to collect money from an angry, defensive client. The digital world gives angry people plenty of ways to strike out – often with devastating results.

It may seem unethical for someone who owes you money to criticize you online, but just ask any business owner who’s tried to get a negative review taken down about the damage it has done to their good reputation. In most cases, they’ll tell you they wish they’d made the effort to listen, investigate and work out a mutually satisfying solution. 

This doesn’t mean you have to be a doormat or resign yourself to writing off 100% of past-due receivables. Successful negotiation starts with taking early action. At 90 days past due, you have around a 70% chance of collecting what you’re owed. After six months, your odds drop to 52% – and when a year has passed, your chances of resolving the situation are a dismal 23%. 

Use this knowledge to prioritize the past-due accounts calling for quick action now and in the months ahead. Keeping an eye on receivables in 2023 is a strategy that will pay off in more ways than one.