resulting from errors and discrepancies caused by sales , fulfillment and billing . It ’ s analogous to sweeping up after a parade . Collectors are constantly cleaning up other peoples ’ litter . That ’ s why we stress the importance of delivering products and services that meet each customers ’ expectations and providing the customer with an accurate invoice that will match each customers ’ purchase order and delivery receipt . Do that , and then collectors will be able to spend most of their time requesting payment of past due balances .
Belief that you have to be a great negotiator to be a good collector
Very few collection calls , less than 5 percent , involve difficult negotiations . A large percentage of past due balances are caused by disputes and invoice discrepancies , most of which are self-inflicted . Resolve the issues , and the customer will pay . Another large percentage of past due balances will be paid as a result of the collector ’ s reminder . Although many customers ’ first response to a payment reminder will be an excuse , most of these are easily countered . You need to polish your skills in overcoming collection excuses . Consequently , collectors rarely get involved in difficult negotiations . When those situations arise , it is usually because of a complicated dispute or a customer in serious financial distress . When there is a complicated dispute , the collector will need support from any co-workers involved in the situation . When a customer is in financial distress , being a good negotiator is an asset , but more important is the ability to come up with a payment plan that will clear up the debt , or at least begin reducing your firm ’ s exposure in the short term .
Focus on the over 60 day past due debtor ’ s balances to get the most impact for your collection of money
This approach foregoes a huge cash flow opportunity by collecting debtors that is under 60 days past due , and is not very effective at preventing bad debt . An effective collection process begins with reminders when invoices are just 5 to 10 days past due , with regular follow-up efforts after that . That ensures that you identify any actual collection problems early on such that by the time they reach 30 days past due you are already aware of any disputes or challenges if any . If you let invoices go until they reach 60 days past due or longer , you will also , in many instances , compound your problems by processing additional orders to customers that should have been identified during the interim as bad credit risks . In other words , you will find yourself unwittingly increasing your exposure to customers that are having trouble paying you .
A best practice approach to collections involves prioritizing your efforts : first , immediately following up with any customer that has failed to keep a promise to pay , followed by any other followups ( at least on a weekly basis ), and then working methodically from the largest to the smallest past due balance ( when you get to the bottom , start back at the top ). You also need to be requesting payment from any customer that has placed a new order and is past due beyond a small grace period . By doing this you maximize your cash flow , ensure effective collection coverage of your entire debt , and prevent increasing your exposure to bad debt losses .
Escalation collection notices ( Dunning letters ) are a waste of time
While their effectiveness is limited , sending emails or letters is better than nothing and the documentation is valuable should you need to sue for collection . In fact , initial dunning notices should at least generate a reasonable response ( from something like one out of five or maybe even better ), while a second follow-up notice a week to ten days later will only garner a response from another 5 to 10 percent . In my experience , the third notice in a series is a wasted effort , and the better use of a collector ’ s time at that juncture is a call . Also , you should avoid spacing the notices too far apart - two weeks is about the limit .
With these caveats in mind , dunning notices can be an integral part of your overall collection strategy . Among other things , they provide a way for you to easily contact all your smaller past-due balances . Also , dunning notices that have been personalized are more effective than generic messages , and personalizing notices is easily done these days with a word processing template . Another way to make your notices more effective is to include the past due invoices in question as an attached document , or provide the customer a link to the invoice at a customer self-service portal . Collection software solutions contain these features , but dunning notices can also be effectively automated using today ’ s PC desktop tools . You will find sending them well worth the effort .
Debt collectors force people into bankruptcy In reality , it would not make sense for a debt collector to encourage a debtor to file for bankruptcy . When people file for bankruptcy , their financial obligations to their creditors are usually wiped clean - and the credit granter and debt collector receive very little or nothing . Debt collectors understand that people in financial trouble often need guidance in settling their accounts without expensive litigation , and often need the flexibility of alternative payment arrangements to work out their financial trouble . A debt collector ’ s business is to collect , but in practice , collecting often includes counseling .
I will lose customers if I use a debt collection agency
By using a reputable debt collection agency , you are sending a strong message that you are serious about your accounts receivable processes and that you are organized and efficient . If anything , this will enhance your business ’ reputation . Most customers understand that if they do not pay their bills on time that it will go through the collections process . It is important to choose a debt collection agency that conducts business legally and ethically .
A good debt collection agency will act as an extension of the client ’ s company . They will always keep in mind the integrity of the client ’ s brand , whilst also being respectful in their treatment of the debtors / customers of these clients .
Myths get in the way of implementing best practices . Collection myths can be found at the very root of bad decisions as well as informing counter-productive activities . Adhering to collection myths more often than not leads to bad outcomes . Simply put , collection myths get in the way of doing the best job possible .
Wasilwa Miriongi is a Certified Credit Professional currently working as the Managing Director , Del Creder Credit Management Limited . You can engage him on this or related matters via email at : WMiriongi @ gmail . com .