Basic Collections continued

Just exactly what do you say when making a collection call?

I was told by my first supervisor to ask for a payment schedule. I called up the customer, introduced myself and mentioned the name of my company and I asked for a payment schedule for the past due amount. Without hesitation the fellow on the other end said, “You must be new.” I thought that was amazing. I was new; this was my very first collection call. I followed the script. I did not mumble, hesitate, sound nervous or in any way give him a clue that this was my very first collection call, but he knew.

He went on to tell me, “We pay sixty days slow. Always have, always will.” See, if I’d known that, if I’d been there awhile, I would not have called him for at least another month. However, I’d done my job. I ascertained that the customer’s payment schedule was next month. I duly wrote it in my notes. I had achieved success of sorts.

Of course a more seasoned collector would have perhaps challenged the remarks and would have countered, telling the customer sixty days was unacceptable and in order to continue supplying product, payment had to be made immediately. At the time, this tactic my have worked. My employer was the leading supplier of its products and if we didn’t sell it directly to the customer, we’d sell it to a distributor who would.

The first objective of a collection call is to obtain answers to the questions “How Much?” and “When?” How much is the customer going to pay and when is he going to pay it? It seems elementary, but I listened to a so called collector for a small lumber company in Barstow who called a customer for money, spent twenty minutes on the phone with the bookkeeper, discussed husband, family, work, the weather and just about everything else without ever getting around to asking for a payment.

I observed a collector for an equipment company that was known for her ability to make more collection calls than anyone else in the department. She wasted no time. She called the customer, told them who she was and who she worked for and asked, “Are you making a payment?” The answer was invariably “Yes” and she was on her way to another call. She ignored what may have been missing invoices hanging out there in the past due columns and she failed to get a definite commitment. Had the customer sent a check in for a dollar, they would be satisfying the collector’s inquiries.

All too frequently the response to the initial collection call is a denial that the customer owes anything at all, because, despite the claims of the U.S. Postal service to the contrary, the customer has not received any invoices. Be prepared to support your payment request with the list of the open invoices, their dates and amounts. Also, be prepared to transmit them immediately, electronically if possible, then, ask how soon following the receipt of said invoices in the amount of x can you expect payment. Be prepared as well to furnish delivery receipts, purchase order numbers and any other documents you may have to prove the legitimacy of your debt. Have these handy because if you have to go in search of them, you will lose your momentum and the customer has a further excuse to delay payment.

It is critical that you, the collector control the conversation, otherwise, the debtor will seek to either delay payment, or pay short. Too often collectors are satisfied with whatever the debtor tells them. For example, a customer owes balances in current, thirty days past due, sixty days past due and ninety days past due. You ask for payment and you are told they’ll send you the ninety day balance at the end of the month. This is where a seasoned collector begins to negotiate; otherwise, to acquiesce is to give the customer ninety day terms by default. You must challenge the customer. Pay the ninety day amount now, and get a commitment for the remaining balance within acceptable time. Persuade the customer to explain why the balance is so far behind. Determine what is going on with the business that he is unable to pay current. Convince him further deliveries may be restricted. In other words negotiate, negotiate, and negotiate. That is the difference between the newbie and the experienced collector.

This is where Strategic Credit Management Solutions can help. We know how to collect and we are able to train your collection group to be to notch collectors. Good collectors bring in the money, not just payment schedules. See our website at http://powerscredit.com/. You may contact us at patrickpowers@sbcglobal.net. Your comments are welcome.

The First Collection Call

When should you make the first collection call?

Most collectors seem to think the correct answer has to do with some period of time after a bill is due. Few have the inclination or the time to make a collection call before an invoice’s due date. However, the best time to make the first collection call is during the pre-approval customer interview.

What is a pre-approval customer interview?

An often forgotten objective of the credit application process is to determine the payment probability of the customer. It is not just a question of will the customer pay; it’s also a matter of when the customer is likely to pay. In other words, what are the current payment trends of the customer? Does he pay promptly within terms? Or does he habitually pay his vendors 60 days slow? References should indicate the payment trend. It is not enough to merely note the payment trend on the notes of a credit application. It is important, particularly when the payment trend is contrary to the company terms to do something about it.

There seems to be trend among credit manager to handle the credit approval process themselves. While someone may generate a credit report and contact the references and get their input, the credit manager makes the final decision, establishes a credit line approving or rejecting the applicant. Then a clerk will set up the account in the system. Unfortunately, no one looks at the application again and no one anticipates the payment probability so that no one responds again to the customer until it goes past due.

Before the customer owes any money, but is motivated to purchase, is a golden opportunity to nail down a payment commitment. It is also the best time to negotiate a more acceptable payment trend from an applicant with a proven history of slow pay. Again, because there is often too little time in a day, this is a step that is ignored, but one that nevertheless could not only free up valuable collection time later, it could substantially improve cash flow.

After obtaining all of the data on a customer, the credit manager should give the customer a call, first to introduce himself and secondly to inquire as to the customer’s usual payment procedure. One need not mention the terms of sale at this point. The intent is to see whether or not the customer intends to pay by your rules or his. Obviously the customer will put his best foot forward. For example, he may tell you that he pays, “upon receipt of an invoice.” Excellent. He’s just committed to paying, before the due date. If this were a high risk customer, it would be in your best interest to have him keep to his word. You’ve made the first collection inquiry. Now, you can schedule a follow up call a few days after the invoice is to be mailed to confirm that payment, per his procedure, is in process.

Sometimes a customer will actually admit to a pay schedule of sixty days or more. This is actually not that uncommon. If your terms are strictly thirty day terms, now is a good time to emphasize the point and insist that if you are to extend credit, you must have an agreement to pay according to your terms of sale. If the customer wants your products, he will agree. Once again, you have your first collection call results. You will not need to call at some point past the due date to remind the customer that he was supposed to pay earlier. Now, your second call, some time around the due date, or shortly afterwards, is a reminder of his commitment to you. This should result in a payment.

Not for reasons of time alone, the credit manager, once arriving at a decision, perhaps should assign the collector who will be ultimately responsible for the account the task of making the introductory call to the customer. This allows the collector to become familiar with the customer, knowledgeable of the payment methods, and provided with an idea of how the customer responds to collection calls and it is an opportunity to offer assistance down the road. In this way a relationship can be developed that will result in prompt payment.

This is just one example of how Strategic Credit Management Solutions helps your business. We can examine your current credit and collection procedures, make recommendations, train the staff and provide follow up periodically. Contact us at patrickpowers@sbcglobal.net or see our website http://powerscredit.com/. Your comments are welcome.

Think Out of the Box

Remember paradigms? Some years ago, everyone was talking about being in a paradigm, a box of normalcy and if businesses were going to change for the better, they had to think outside of it. In recent weeks I’ve had two situations that reminded me of the paradoxical paradigm. The first, a salesman I know was preparing to visit a customer who owes $600,000. The objective of the visit is to figure out how to keep the company afloat so that in time it will be in a position to repay its debt. The salesman told me, “Two years ago we would’ve sued the bastard and gotten a judgment.” Back then the chances for recovery of a judgment were a lot higher. Now, not so much. The salesmen recognized that he and his company had to be creative in its approach to collecting money. He had learned the lesson of being stuck inside an outdated, ineffective paradigm.

The second situation has to do with the homeowners association I mentioned a few blogs back. They were threatening to assess the homeowners who were paying their dues on time to make up for the loss of revenue caused by the failure of other homeowners to pay their dues. When times are good, the association experiences about a 1% delinquency rate. Now it is running an alarming 10%. I volunteered to help the association collect from the delinquent homeowners. Well, it’s not that easy. The homeowners association has its rules – its very own rigid paradigm. The current practice when a homeowner is delinquent is to send him a letter. Another letter goes out after 60 days past due. Then a third letter is sent from the association’s lawyer threatening a lien. My approach was to make a phone call perhaps between the second letter and the lawyer’s. As a collector, I’ve discarded letters for the most part, finding a direct voice to voice approach to be much more effective. Ah, but the association as its rules, outline in the CC&Rs. There the procedure is set in stone, much like the Ten Commandments etched in granite. And as effective has my approach may be, it cannot be done. Amazingly, the association would rather have less revenue and risk the ire of the homeowners, than consider a change in its collection practices.

Companies who can change in tough times, survive the tough times. Those who don’t change don’t survive. Don’t get stuck in a paradigm dogma. Let Strategic Credit Management Solutions review the trends, offer some solutions, train the staff and set you on the right course. It’s what we do. See our website www.powerscredit. You can e-mail us at patrickpowers@sbcglobal.net. Your comments are welcome