collecting of a firmís account receivable can mean the difference between
continuing in business and insolvency in todayís economy. Prior to making
contact with the customer the collector should have a plan to motivate
the customer to pay what is owed and past due.
customer we are attempting to collect from also owes other creditors
money. In many cases, the customer owes more then they have
the ability to pay at any given period of time. These other
creditors may not be our competitors when it comes to goods and/or services
but they are our competitors when it comes to obtaining payment for goods
and/or services. Therefore, whether new to the collection game or a seasoned
veteran, it is important to recognize that we are in a highly competitive
arena. To meet the competition we must not only know the strengths and
weaknesses of our customer but also ours.
of the most important characteristics of the skilled collector is a
positive attitude. If we are positive about what we are doing then
the customer should also be positive in their response to us. All
communication whether it is verbal or non-verbal is nothing more then a
reaction to what is being communicated first. If we start out positive then
we should receive a positive response. Start out negative and we should
expect a negative.
skills necessary to be a polished and successful collector are simply the
ability to solve problems, the ability to understand behavior and the
ability to utilize and practice common sense. The effective collector has
learned how to apply these skills in negotiating, questioning,
listening and communicating. There
are numerous reasons why customers do not, will not, or cannot pay on time.
Many customers prioritize their outstanding invoices by the importance and
necessity of having to pay. When obtaining new or additional credit,
customers have a tendency to overestimate their future ability to repay
debt. They also have a tendency to underestimate their combined total of
short and long term liabilities. This is where common sense often comes into
a customer has $20.00 dollars and owes $15.00 then he has a balance of
$5.00. This $5.00 is known as positive cash flow. However, if the same
customer goes out and acquires an additional $10.00 worth of goods on credit
but does not increase the $20.00 then he has negative cash flow of $5.00. We
have to understand that if debt increases but income stays the same then the
customer is going to have problems paying their bills which will result in
collection problems for us. Thus, an important fact to determine is whether
the customer purchases our product for sale or inventory.
The number one step in collecting is pre-call
planning. Have we done everything correctly to insure that we have not
provided the customer a reason not to pay? Are billings mailed timely? Have
credits been issued timely and properly? Have return authorizations been
issued and sent? Have returns been processed and the customer credited? Has
cash has been posted timely and correctly? Is our billing correct?
Be physically and mentally prepared to make the
telephone call. Emotions are easily communicated over the phone so be
prepared to convey a positive attitude in our efforts
to collect the money. Motivate the customer to pay by using positive
statements instead of negatives. Rather then informing the customer that
past due balances may prevent future orders from being approved. Inform the
customer that prompt payment insures the timely processing of future
orders. The more often we can show the customer that it is in their
best interest to pay our bills promptly, the better chance we have of them
doing so. Be aware of the impact the customer has on our business both in
terms of size and cash flow. There
are credit decisions and then there are business decisions. It is important
to determine how our company looks upon the customer before making
statements that may not be supported. When making the call, always ask for
the entire outstanding amount and do not assume that a problem exists. Many
collectors make the mistake of asking is there a problem? Instead
try, Can you please tell me when the invoice was paid?
the customer when they have the money. Many unnecessary calls,
that waste time, are made because customer contact is based on due dates of
invoices rather then when the customer is prepared to pay the invoice. Due
dates are not material when collecting. Knowing when to contact the customer
is one of the keys to successful collecting.
who the decision maker is and speak to him or her. Accounts Payable has responsibility
to pay bills approved, by others, for payment.
Accounts Payable generally does not have the authority
to decide, on their own, who gets paid and who doesnít.
size of the company will determine who the payment decision maker will be.
In a small company the decision maker will be at a higher level.
Always involve a decision maker, because we expect a quick decision
and a commitment that in the future our invoices will be paid on time.
Often, Accounts Payable will have limited authority, meaning
that once the invoice has been approved for payment they can determine the
priority of payment. Involving the decision maker can insure our invoices
are hereafter always in a priority position for payment. When a change in
payment pattern occurs take immediate corrective measures. Investigate the
reason for the deviation, as it may be the beginning of a cash flow problem.
Display concern as a business partner but assert the fact that payment is overdue and we expect
payment on time, every time.
most important element in collecting is to know the customer! The
more we know about our customer the easier it becomes to get paid.
Questions convey to the customer that we are
concerned. Questions also provide us important information for leading the
discussion and controlling it. Questions also yield information or reference
material for future discussion with the customer. Ask open- ended
questions and when the conversation requires it ask leading
maintain control. Develop fact-finding questions that will assist in:
Collecting the money in full. Provide information for current and future
reference and to update files. To
assist in analyzing and evaluating the credit line. Preparing a payment plan and making decisions.
asking questions the tendency is to get distracted with asking the questions
and thus forgetting to listen. Donít just listen to what the customer has
to say but listen for non-verbal responses like the tone in the customerís
voice. Does it come across sincere or sarcastic?
Active listening requires the use of our imagination
that is seldom used in casual
listening. Paraphrase and summarize the conversation. This
demonstrates to the customer that we are listening and at the
same time allows us to clarify what we are hearing.
are reasons for non-payment. The customer will inform of us of those reason if
we listen carefully and let the customer talk without interruption, be a
mediator between the customer and the company, ask questions based on the
facts stated by the customer, determine if options are available by asking
the customer for solutions, verify the customers position by restating what
they have said and work towards resolving the situation. If we practice
these guidelines, in the end we will have the ability to state clearly our
tend to be very short! There is no substitute here, speak with pen and
paper. Record notes immediately
and be concise, use quotes. Preserve notes in whatever system the company
has devised for record keeping so that it becomes part of the customerís
history. Let others in the company, especially sales, have access to the
notes. Often a great deal of time is wasted while we try to reconstruct what
occurred in our last conversation with the customer or we attempt to verify
information that is not under our control. By utilizing a note system and
encouraging others in our organization to do so also, a lot of time will be
better spent being more responsive to the customer and at the same time
the completion of the collection call, time should be spent evaluating the
willingness and the ability of the customer to pay. What was the
customerís attitude? Was the customer concerned and cooperative? Was the
customer receptive to suggestions? What, if any, questions remain
unanswered? Did the customer bring up any warning signs? What is our
assessment of the account? A little time spent evaluating our conversation
with the customer will prove beneficial in future transactions. Good record
keeping allows us to be progressively firm if the need arises. Remember
to be assertive and not aggressive!
when a customer becomes past due we may well be aware of what created the
past due before it occurred. We are aware of this through warning
signs. These are everyday events that appear meaningless when they
occur but can have an effect on us later. We need to pay closer attention to
these warning signs because if we do, often we can address an issue before
it becomes a problem. The following are examples of warning signs:
Broken payment promises, returned checks, change in payment habits, frequent
credit inquiries from other creditors, changes in management or key
personnel, customer unavailable and phone messages are not returned,
frequent requests for invoice copies, purchase orders or proofs of delivery.
We should be concerned and investigate further whenever we receive a warning
is an old saying in collections: If they have not kept the third promise,
why should they keep the fourth, fifth, etc.
promises should always be taken seriously. The customer is not the only one
who makes promises, we make promises too. We cannot expect the customer to
keep their promise to us if we do not keep our promise to them. If we make a
promise to call at a particular time or investigate a problem within a
certain time frame then we need to do so. There is nothing worse then losing
credibility in the eye of the customer. Say what can be done NOT what
the customer wants to hear. Credibility is one of the most important
aspects of a collection call. We need to stress the importance to others in
our organization of the importance in returning phone calls. Often
collection problems can be avoided by simply providing the customer with the
service we promised them in the beginning.
make certain that the company supports our actions before discussing
solutions with an overdue customer.
a customer breaks a promise then take immediate action, otherwise our
credibility will be at stake. Never be afraid to inform the customer that
their credibility is suffering because of their failure to keep the promises
AVOID ARGUMENTS and THREATS
customer who is past due can easily lead us into an argument and drive our
attention away from the key objective of getting paid immediately.
Stay composed and focused. Remember we are the professionals. In the
profession of collecting debts it is easy to become aggravated, emotional
and flustered. Getting into an argument is tempting but it is not productive
and it is a waste of everyoneís time. Do not allow the customer to take
control by engaging us in a fight.
an argument is imminent and there is no way to avoid it then it is best to
say This is probably a bad time for us to be having this discussion,
Iíll call back.
Avoid threatening the customer with adverse action
unless it has been determined that this is the action the company supports.
objective of the collector is to get the full amount owed NOW! Treat
every dispute as an opportunity to get a commitment for full
with the customer that the dispute they have raised is the only one
preventing them from paying the bill. Get the commitment from the customer
that once the dispute is remedied they will make payment. Once the
commitment for payment has been acquired work with whomever necessary in the
organization to resolve the dispute as quickly as possible. One of the most
confusing tools used in the collection of invoices is terms of sale.
does the term Net 30 days really mean?
days from date of invoice? 30 days from date of receipt of invoice? 30 days
from date of receipt of goods? 30 days from date invoice is approved for
is one of the leading disputes in the payment of bills and the customer
needs to be informed that terms mean simply due on or before the 30th
day! It is the responsibility of everyone in the organization to collect!
WORK SMART and NOT HARD
all resources available effectively. Develop
relationships with sales, customer service, billing, warehouse personnel,
order entry. Every person in the organization who plays a role in creating
the invoice should be cultivated as a resource to assist in the collection
of past due bills. Management should be involved when it has been determined
that all the other parties are unable to motivate the customer to honor
is the quality of the collection effort not the quantity.
a collection agency is necessary then use them effectively. No account
should be referred to a collection agency until all company resources have
been exhausted in dealing with the customer. Finally, remember that we are
dealing with a business partner. Our business will not succeed unless we
Service is a vital part of every collectorís job. Focus on
satisfying and taking care of the customer and the money will follow.
I wish you well.
The information provided above is for
educational purposes only and not provided as legal advice. Legal advice
should be obtained from a licensed attorney in good standing with the Bar
Association and preferably Board Certified in either Creditor Rights or