Insurance Agency Management from a Cash Flow Perspective

Insurance agencies have many specialized problems in the area of cash-flow. As with many businesses today, the time lag between statements going out and cash flow coming in can be very disheartening. Let’s identify some of the reasons for diminished cash flow. Answer the following questions for yourself.

1) How often do you send statements?

2) How long after the debit is established do you send those statements?

3) Are your statements clear as to amount due, date due, and location to send payment?

4) Do you enclose a self-addressed stamped envelope?

5) How clear are your salespeople when telling new clients how policy is to be paid for?

6) Do you wait for the policy to arrive to bill client?

7) Why?

Now, let’s explore the answers.

Statements can be sent monthly, every two weeks, or even weekly. Remember, “The squeaky wheel gets the grease.” Billing is expensive, but so is NOT getting paid.

Once a debit is established, the statement should go out immediately regardless of your billing cycle.

Don’t wait until you get the policy to send your bills. Bill immediately! Bill again when the policy is delivered to you with notice that if not paid within thirty days, the policy will be cancelled. That way, you can cancel BEFORE putting out the cash.

If this seems simplistic, remember that if you make the first payment, and your policy holder fails to pay, you are out of luck AND cash. Now you have a collection matter as well as a cancellation. You may think your operating statement will continue to look strong because uncollectibles have not been removed. Your balance statement will show you up, and the value of your agency will suffer.

Regular statements should go out approximately on the 25th of every month. If you wait until the first of the month to bill, your bill will arrive around the fifth. Most companies have paid their bills by then, and your bills might wait until the following month. Businesses generally pay bills around the tenth of the month. If your bill arrive early, it may be the first in line.

Take a good look at your statement. Can EVERYONE understand it or does it take a certain level of sophistication to be understood? Remember, you are dealing with all types of people. Make sure your statements state everything clearly. (If you send a copy of your statement to me at the address following this article, I will evaluate it for you, pro – bono.) Statements should have the statement, “Due no later than…” and the date should be 10 days from the date you sent the bills. “Due upon receipt” means nothing. “Due within 10 days” means very little. Be clear! Remove 30 – 60 – 90 columns!

For very little outlay, you can greatly increase bill payments. Have return envelopes printed and enclose them in your own bills. Make payment EASY! Enclose an envelope!

Invariably, most agencies will need the help of a professional collection agency to recover bad debt. Don’t make the mistake of waiting months or years to take this step. Small and large businesses go under in great numbers every day. Once they do, forget your uncollected bills. Check out at least three agencies.

1) Are they a member of the American Collectors Association? Most ethical agencies are.

2) Do they provide MONTHLY reports on any action on your accounts?

3) Is there a customer service representative to answer your questions or concerns?

4) Are they a percentage (contingent), flat fee, or coupon agency? Don’t judge by price alone. Ask for four references in your area of business and then check them out. If one agency charges you 30% and another only 20%, don’t assume 20% is less. The more expensive one may return a higher percentage of your money, therefore costing you much less.

5) Discuss with your rep the optimum time to turn accounts over. Work them in house for 30 – 60 days, then make a decision. In another article we will discuss good in house collection procedures.

Phyllis Micahnik is the Director of Client Services of A-1 Collection Service, a national collection practice. She can be reached at (856-667-0070.