Creditworthy News - 3/13/08 Edition

EFFECTIVE COLLECTING
David Balovich, CCC

The collecting of a firm’s account receivable can mean the difference between continuing in business and insolvency in today’s 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.

The 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.

One 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.

The 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 play.

Example:

If 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.

I wish you well. 

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I wish you well.

David Balovich is a certified credit consultant and author on credit management. His email address is 3jmcompany@gmail.com  

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