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Collections -- the Right Way
Too many businesses treat past due accounts receivables collections
as a low skill task to be performed without any prescribed methodology for
accounts which are 90 days or more past due. Sometimes an accounting
clerk is assigned the chore, sometimes even the receptionist. If those
efforts don't work, the account may simply be turned over to an outside
collections agency.
Poor collection efforts not only lead to cash flow problems for a
business, but can lead to a company going out of business altogether.
In addition, poor collection efforts can sour company/customer
relationships needlessly.
Common Misconceptions
Some common misconceptions need to be corrected:
Past due accounts are just bad customers, and threats and
accusations are therefore in order
Collection attempts will ruin the customer relationship
A series of written notices should first be mailed out before
calling, leaving the calling until the account is 90 days or more
past due
Anybody is suited to make the collection calls
Collection agencies are effective and a good alternative to taking
up an employee's time in-house
Collection calls are by their very nature confrontational and
unpleasant
All of the above beliefs about collections are false.
Correct Procedures
Collection calls should be performed by someone who is detail oriented,
has a nice telephone personality, communicates clearly in good English
(both verbal and written), understands math, and can think creatively
in real time. Without these traits, training will be ineffective. Such a
collections person may or may not exist in the accounting department.
Professional collections training should be provided to the person
assigned to do collections -- but first, here are some tips, guidelines,
and rules:
Never accuse the past due customer of anything or make them wrong.
By asking questions in the right way, they will end up painting themselves
in their own corner through inconsistencies and unfilled promises.
This is done exclusively through the use of questions.
Forget the past due letters. Call the customer's accounts payable
clerk or accounting manager early on (just after 30 days) to find out
what is going on.
Consider the initial collections call an opportunity to find out
about customer satisfaction and problems. Assume good faith until
proven otherwise. Some customers don't pay a bill simply because they
feel they didn't receive the service or product promised or that such
service or product was inferior or inadequate. They may very well be
right, with the fault lying in one of your departments.
The customer may not have received the invoice or misplaced it. They
may have found the invoice to be incorrect. So, the collections caller
must also be empowered to solve the problem, working with the other
departments of the company to do so as necessary.
Find out who the decision maker is for customer payment checks'
approval. Don't assume anything in this regard, as the check approval
decision process varies by company.
Keep detailed records of all such collection calls, noting
a scheduled time to call back, who to call, telephone numbers, and
commitments.
Do not make the collection call before researching the account
and having the client file and a copy of all invoices outstanding and
the accounts receivable aging report for that account in front of you.
That way, if the customer asks for you to send the information again,
you can do so immediately while they are on the phone and confirm its
receipt.
Do not get off the phone without some kind of commitment,
unless there was a problem with the service or product. That commitment
should be the customer's, not yours, and could be anything from doing
research on their records to making some level of payment against the
balance owed.
If a payment is promised, find out how much, against which invoices,
exactly when the check will be ready, and where you can pick it up
(or have picked up) if local. This takes away the "it's in the mail"
excuse and lets them know you are both serious and professional. After a
planned number of mail transit days, call immediately if not received.
Provide regular uninterrupted time for collections, being sure
to be persistent and timely in making follow-up calls immediately when
promised or due. Such persistence and timeliness will convey seriousness
and the message that you are not going to forget about the issue or get
too busy to deal with it. Not doing so will have the opposite effect and
defeat or delay the collections effort.
This consistency also means the collections caller must have this
duty assigned as a primary duty, not secondary. Such work is critical to
the health of the company. Remember, the best chance of collecting is
using the personal relationships and bonds that already exist between
the company and customer. Once that payment connection to the company
is broken (via a collections agency for example), the past due customer
assumes the debt is written off and payment is no longer as important.
In the event the customer representative with whom you are speaking
has totally discredited him/herself, go up the chain of command to get
a solution -- to the comptroller, CFO, and then the president of the
company. If all else fails, either write the account off the books or
take the customer to Small Claims Court.
Small Claims Court can be a lot of work and time but you will
usually win in the end if the documentation is in order. The limit is
$5,000. However, if the amount outstanding is over that limit,
you can submit separate claims for each outstanding invoice under
$5,000. Although this process is a little more work, the procedure
will drive the past due customer nuts.
Lastly, if the customer is not paying their bills, don't keep
approving new business with that account. That may seem obvious, but if
two company departments are not communicating properly, it often happens,
as I have personally witnessed.
These guidelines are not meant to replace necessary collections
training, but can be a good start on your collections results.
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