What is Cash Collection?

After an invoice has been issued, money that is owed for products or services that were supplied on credit is referred to as accounts receivable. Cash collection is the process of redeeming or collecting accounts receivable. While cash collection can usually be handled by the service or product provider, difficult cases can be referred to cash collection agencies or courts of justice.

Cash collection is an accounts receivable function of a business that aims to address issues of payment long before accounts become overdue or delinquent. Cash collection usually involves negotiating payment arrangements and ensuring that money is paid before, and not after, the agreed upon time. To this end, it is important for companies or individuals issuing invoices to include clear terms of payment and instructions regarding the payment process. This greatly facilitates the cash collection process by invalidating any potential claims that the debtor did not understand the payment procedure. When an invoice remains unpaid for longer than the permissible time period specified in the invoice's terms of payment, it is considered an overdue account.

In dealing with overdue accounts, companies will frequently attempt sending letters and making several phone calls in order to re-establish contact with the debtor and to try to negotiate further. If this is impossible, they might try issuing a pre-collect notice. This is when, before an account is taken over by a collection agency, the customer is sent a warning that states it is his or her last opportunity to contact and deal with the company directly as opposed to an agency whose tactics likely will be more aggressive. Cash collection companies find alternative ways to contact the debtor and can take legal action, such as a law suit, against him or her.

When an account is given up to a cash collection agency, it is in effect being sold to them. They become the new legal owners of the account and the debt is therefore theirs to collect. Reputable debt collection agencies will normally not request upfront fees from their clients, but instead agree to accept as payment a large percentage of the debt once it is paid. For example, if the debt collection agency is to receive 40% of a successfully collected debt as their payment, the individual or organization that contracted them would only receive the remaining 60%.

Depending on the size of the debt, hiring a cash collection agency may or may not seem worthwhile. Another option is to take the issue to court on one's own. Without proper training, it can be difficult and very time consuming to handle the particulars of a case; hiring an attorney to do so is possible but, again, may prove to be an expensive alternative. Whenever dealing with an overdue account, it is important to consider what is more valuable — the amount of the debt or the time and money it would cost to retrieve it.