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.

BE PREPARED

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?

Contact 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.

Know 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 doesn’t.

The 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.

The most important element in collecting is to know the customer!  The more we know about our customer the easier it becomes to get paid.

ASK QUESTIONS

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 questions.

Always 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.

LISTEN

When asking questions the tendency is to get distracted with asking the questions and thus forgetting to listen. Don’t just listen to what the customer has to say but listen for non-verbal responses like the tone in the customer’s 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.

There 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 expectations.

MAKE NOTES

Memories 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 customer’s 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 increasing productivity.

At the completion of the collection call, time should be spent evaluating the willingness and the ability of the customer to pay. What was the customer’s 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!

WARNING SIGNS

Often 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 sign.

BROKEN PROMISES

There is an old saying in collections: If they have not kept the third promise, why should they keep the fourth, fifth, etc.

Broken 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.

Always make certain that the company supports our actions before discussing solutions with an overdue customer.

When 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 made.

AVOID ARGUMENTS and THREATS

 A 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 everyone’s time. Do not allow the customer to take control by engaging us in a fight.

 If 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, I’ll call back.

Avoid threatening the customer with adverse action unless it has been determined that this is the action the company supports.

DISPUTES

The objective of the collector is to get the full amount owed NOW!  Treat every dispute as an opportunity to get a commitment for full payment.

Establish 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.

What does the term Net 30 days really mean?

30 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 payment?

Terms 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 30^th day! It is the responsibility of everyone in the organization to collect!

WORK SMART and NOT HARD

Use 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 their commitment.

It is the quality of the collection effort not the quantity.

If 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 have customers.

Customer Service is a vital part of every collector’s 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 Bankruptcy.