Cost Versus Profit
Letters are the cheapest and quickest form of communication. properly executed letters should achieve a significant ratio of recovery at minimum cost; however, dunning letters will not solve all of your receivable’s problems. There comes a time when you must take more positive action, but you must carefully weigh the economics of continued pursuit by manual dunning or attorney intervention. It is unprofitable to call on past-due balances less than $100. Such small balances generally should be dunned by letter. There are, however, some exceptions:
Your customer base does not include hard-core debtors or mail-order accounts.
Telephone numbers are programmed into statements or invoices or somewhere else where they can be easily retrieved.
You have minimum-wage labor for follow-up.
You maintain a customer service department trained to handle small-business balances and service problems.
You keep telephone calls to a minimum and maximize the use of dunning letters.
You use telephone contacts to develop rapport and enhance future business.
According to the American Collectors Association, the cost of calling a debtor-inducing labor, time, and other factors relating to overhead-averages more than $17.00 each. You must amortize this cost over your entire receivables portfolio to determine costs versus profit.