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.