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Could your company use some extra cash at a cost probably below bank rates? Are you willing to put a minimum of time and effort into controlling your cash flow and at the same time improve customer relations? If you're a rational business person, then you have answered "yes" to each of these questions. Who wouldn't want more cash to improve your business or put back into your pocket? The solution lies within your own business. It's called collecting your money. Most businesses fall short in this area. Many fail to give past due receivables the attention they require. Admittedly, collecting is a difficult task. One is often subjected to verbal abuse when attempting to collect a past due account. Yet the rewards, such as improved cash flow, make the efforts worthwhile. The process begins with a commitment from upper management to allocate resources to this area. This is based on the same premise as in selling; you must spend money to make money. These resources may be the valuable time of the president in a small company or increasing staff to collect the past due accounts. It all depends on the need, commitments and perceived priorities of the person or persons in power. If a non-owner will collect the past due accounts, he or she should clearly understand that their responsibility is to facilitate the collection of certain accounts, whether those accounts be defined by dollars, geography, product, size, the alphabet, etc. Also, they should understand that their progress will be monitored, proper direction will be administered and that their efforts will contribute greatly to the company's overall success. Furthermore, it should be company policy to collect customer accounts
promptly upon maturity. Past due accounts cost the firm not only money
that the account is not paying, but an imputed cost in the time value of
money. Therefore, it is important to identify early slow paying accounts
and problems, and not allow them to linger.
I. COLLECTING A. The collection cycle should begin shortly after an account comes due. This cycle will continue until either the account's delinquent amount is cleared by payment, credit or write-off or the account is placed with an attorney or collection agency. For most companies this should mean the past due account will be contacted about twice a month. Within five to ten days after an account has gone past due, a photo-copy of the invoice, a statement or letter should be mailed marked "PAST DUE". The communication should include a legible name of someone to contact if the customer has a problem they wish to discuss. Copies or some other reference detail of these should be kept for further follow up later in the month. Approximately fifteen days after the mailing of this the collector should personally telephone each past due account, that has not yet communicated with him or her, and ask when the balance will be mailed. The contact date and a brief summary of the debtor's response should be written down on a collection sheet, and attached to the other saved information. It is important to maintain an organized and separate record of this information rather than random scraps of paper poorly maintained. After the account has been brought current or paid in full, the collection sheet should be kept in a file for future collections. A trend can often be identified in the recorded remarks that will allow the collector to better handle this customer in the future and perhaps expedite collection of the past due monies. The process of written communication early in the month followed by a personal telephone call should be continued for ninety days. This process provides the past due account a reminder of his/her delinquency and responsibility to pay. If nothing but promises of payment have transpired, then serious consideration should be given to placing the now grievously past due account with a third party for stronger, more intense action. Since the collector's only contact is via telephone, it is vital that he or she nurture an outstanding and professional phone collection technique. Collecting involves personal contact with customers and must be done in a professional manner. From the debtor's view these calls are negative. Therefore, it is important to convey a positive image to achieve the objective of the call. By projecting a professional image, the collector will be perceived by the debtor as a person with a purpose who is difficult to sway from collecting the past due monies. Professional qualities are knowledge, use of correct language, formal communication and an organized thought process. Once the debtor is on the telephone the conversation should be kept to an optimum. This means obtaining a good commitment date for payment and courteously ending the conversation. Keep the conversation moving in the direction of solving the non-payment issue if the conversation strays. B. To be effective, assemble the relevant facts before making the collection call. Make sure you know exactly what is due, have something to write with and have some type of collection sheet on which to record a summary of the conversation. A past due customer may express his opinions or emotions, but cannot argue the fact their account is past due. Factual knowledge and getting to the point undercuts the customer's excuses and gives the collector the necessary power to collect payments owed. C. Condition past due customers to get in the habit of paying within terms. Call the customer and ask for it! Ask for the total past due balance. If there is a valid reason why part of the balance is not owed, quickly adjust their account and ask for the new past due amount. After repeated conditioning on the collector's part, customers become convinced that you mean business and learn that it is easier to pay your bill, before other companies who don't call. Coordinating telephone calls with written notices has a high impact.
From the conversation's outset, make sure you keep control of the call
at all times. If a customer thinks he has an upper hand, payment negotiations
start to deteriorate. The debtor is the one who failed to pay a legitimate
bill, so he will often start the conversation off on the defensive. Also,
the debtor may try to throw you off by displaying emotion, threats or anger.
Give the customer time to vent and "cool off". When the mood is calmer
pursue the objective of collecting the past due amount.
II. COLLECTION PERSONALITY Developing a proper "collection personality" is essential to the collector as it impacts greatly on the debtor. Therefore, it is imperative to properly cultivate habits that will get results. Whether or not the customer ever has the opportunity to actually meet the collections person, it is important to project a proper personality and image. Voice pitch, inflection, choice of words, attitude and timing of remarks contribute to the collection personality. A. In order to accomplish the task of collections, the collector must sound businesslike. The debtor must feel that he is talking to a real person, who is not rude or abrupt. It is important to be natural and sincere, treating the past due account in a serious manner, stating facts. Try not to be too familiar, as the debtor will use this to delay payment. Firmness and conviction, not poor attitudes and trendy expressions, collect money. Another collection personality trait to develop is to sound confident. By communicating authority, the debtor will respect the collector. In order to sound confident, one must be prepared. Know the details of the account, be able to provide invoice numbers, dates and amounts. When asked a question be prepared to provide accurate responses. If confronted with a question that an answer can not be provided immediately, defer to another time and follow up on a timely basis. B. Also it is important to be flexible. A collection personality should
have many facets, which are to be used according to the occasion. There
may be times when an aggressive attitude will not work. If the debtor is
extremely upset and angered, give him or her the chance to voice their
side of the story. In their agitated state, an aggressive stance will only
fuel and maintain their non-rational attitude. Listen to them, periodically
provide assurance that you're paying attention to what they are saying
and take appropriate notes. After a while the customer will have vented
enough frustration for the collector to meaningfully converse with the
debtor. Vis-a-vis the collector should be sensitive to a situation that
requires firmness.
III. DEBTOR HANDLING How does the collector develop the know-how of a multi-faceted collection personality? The key is to understand the debtor's reaction to the collector's call. While making the telephone call, debtor reactions should be written down for later referral. A. There are four primary reactions that a debtor may display when the collector calls. Often the customer may feel a good defense is to attack the collector. He may complain about the product or services that have been provided. The collector should not challenge this complaint, but rather state the pleasure at finding out the reason for non-payment, and the willingness of the firm to correct such a situation. Caution must be maintained, as this may be nothing more than a ploy to delay payment or to not pay at all. Facts surrounding the situation must be obtained, so the collector or some other responsible person can facilitate immediate solution. If the complaint is for only a portion of the bill, then ask for that which is not in dispute. After all the customer should pay for that which is not defective. B. Another favorite payment delaying tactic is for the debtor to claim that they have never received an invoice or a statement. Begin removing this barrier by confirming their name and correct mailing address. If these are correct, then try to get him to admit that the past due account exists and ask for payment. By successfully addressing each of the excuses the debtor uses, the collector can always get back to the issue of the past due account and the question of when the past due account will be paid. Failing this, send copies of the invoice(s) by fax or by guaranteed delivery and follow up with the debtor on a timely basis. By keeping accurate notes of debtor conversations, this payment delaying tactic can be quickly identified and the debtor confronted. Finding the truth of non-payment can then more accurately be determined and addressed. C. For those debtors who are not as elusive or aggressive as the first two types, there is the debtor that is looking for sympathy. Normally after the collector completes his introduction and request for payment in full for the past due account, the debtor states the poor financial condition of the firm or other problems that prevent payment. The collector should empathize with the customer, but insist that the past due account be paid. If the debtor persists that the account can not be paid completely, then it may be wise to work out a partial payment program. Repayment must be as short as possible, and all particulars must be well defined so as not to give the debtor any opportunity to not pay. If repayment is to be extended beyond a reasonable time, then have the debtor acknowledge this agreement in writing. Furthermore, if the past due account is large, then perhaps the debtor should sign a personal guarantee or pledge assets to provide security. D. The last reaction the collector may encounter, is one of defiance.
The debtor may offer a totally indifferent attitude to the past due account.
The collector must maintain a businesslike manner and should again request
payment for the past due account. At this point the debtor may reveal the
true reason for non-payment, and then a solution can be created. If the
customer persists, stating that no payment will be forthcoming and provides
no explanation, then the only other alternative is to advise the debtor
that without further information, their account will be considered for
placement with a third party for collection.
IV. OTHER CONSIDERATIONS A. There are many other considerations in cultivating a good telephone technique for collecting. The call must be prepared for and planned. Gather the facts, as the collector can expect little or no help from most debtors in trying to get a past due account resolved and paid. Know what makes up the past due balance and review previous conversation notes to extract trends of excuses for delaying payments. The collector should mentally prepare to overcome these excuses in order to collect the past due account. The initial contact will probably be with the receptionist or operator. Immediately ask for the accounts payable department. Once connected, the proper opening statement to the individual responsible for paying the bill, is very important. The collector has but a few seconds to gain and retain the listener's attention and achieve the required results. The first few statements made by the collector should identify himself, the company he works for and the reason for the telephone call. An example of a good opening statement is "Hi, this is John Smith from XYZ Company and I would like to find out when your past due account of $$$$$$$ will be mailed." The collector should pause in order to allow the person to respond. A verbal picture has been painted and it is now up to the debtor to answer. B. It is very important to identify and speak with the person that is responsible for paying the bill. Sometimes collection calls fail due to the fact that the collector is not communicating with the person in authority. Bookkeepers are not normally decision makers; the person who signs the checks is often the person to talk with. Routinely the collector can anticipate working with accounts payable to solve most problems, however when the delinquency is great, then the person in authority must be called to the telephone. Once communication has been established with the proper person, the collector must maintain control of the conversation. Concentrate on what the customer is saying and try to quickly absorb the information. Separate facts from opinion and think ahead to be able to resolve any problems that may arise. Clarify what the debtor states, and repeat important points. Listen carefully to the customer's response about the non-payment situation. The debtor may be offering excuses of financial distress for slow payment. It is important to remind the debtor that they did receive products and/or services that they have benefited from, and the collector is asking for nothing more than what is owed. The collector should stress benefits and value received by the customer. A businesslike and professional attitude should keep the collector in control of the call. The collector should not feel intimidated by the debtor, since neither the collector nor his company has done anything wrong and the collector is only doing his job. In many cases the collector has greater knowledge of the situation than the debtor and should feel confident about his position. The debtor may continue to insist that payment in full is not possible. Only then should the collector ask for a substantial partial payment, after all, something is better than nothing. The debtor should agree to specific amounts by specific dates. If there is a portion of the past due account that is disputed, then this should be made a separate issue and the collectible portion addressed immediately. It is wise to repeat the exact payment arrangement the debtor will follow, so that there is no misunderstanding. Keep the repayment time as brief as possible, discouraging the customer from trying to extend the payment schedule beyond 30 days. If extended payments are to be received, the discussion should turn to obtaining personal guarantees of the principles, interest-bearing promissory notes and financial statements. The customer will most likely complain. The collector should respond that if they are to act as a bank, they must receive the same special treatment. Often this is enough to get the customer to pay on a more timely basis. The debtor is happy to use your company's money as an interest-free loan, but when confronted with the above they realize that it is to their advantage to pay the bill more promptly. Also, whenever special terms are granted, the debtor should be made aware that these terms are not normal, and are only provided on a one-time basis due to their financially distressed situation. Furthermore, the terms of this hasty agreement should be put in writing, with an extra copy to be signed by them and returned to the collector. C. Verbal leverage is something the collector should be very much aware of when talking with the debtor. The customer uses leveraged statements such as, they will take their business elsewhere, payment will be withheld from the account, threat of counter-suit and they do not pay small balances due to the cost of issuing a check, knowing they are too small for your company to litigate. However, the collector should remember that he also has leverage; all future orders will be on COD or Cash basis; interest charges will be assessed; goods and/or services will be withheld; the need for personal guarantees; or possible referral to a collection agency or attorney. Whenever possible, try to close the conversation with the debtor on a congenial note. Summarize the outcome of the conversation and wait for the debtor to acknowledge your statements. If the customer disagrees with your summary, recycle the use of the above points until an understanding is concluded. The collector should feel satisfied that he was able to get something the debtor did not want to give up ... payment of the past due account. Finally, thank the debtor for their time and assistance. Although the number of situations a collector may encounter are almost limitless, the above will provide a good understanding of collecting money. Practice the essentials and you will most certainly improve your cash flow. Alan D. Dittmer
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