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Using a Collection Agency to Preserve Customer Relationships

A Credit Manager’s Cre­ative Way of Sav­ing Customers

This Article by Dean Kaplan was originally published on our Blog at The Kaplan Group.

Want to see a sales­per­son squirm with dis­plea­sure: just tell them the account for a long-term cus­tomer is being sent to a col­lec­tion agency.  The sales­per­son has visions of rogue debt col­lec­tors bad­ger­ing their cus­tomer with threats of bad credit ref­er­ences, legal suits, judg­ments and gar­nish­ments, car­ing only about col­lect­ing a few dol­lars and no con­cern about pre­serv­ing rela­tion­ships.  They assume that once the cus­tomer has been through this ringer, he’ll never talk to the sales­per­son again.

Of course, this cus­tomer hasn’t been talk­ing to the sales­man since his account went past due and his credit avail­abil­ity was sus­pended.  At the last indus­try trade-show, the sales­man saw his cus­tomer com­ing down the aisle, but then abruptly turn away when brief eye-contact was made.  Pre­sum­ably the cus­tomer was embar­rassed that his account was delin­quent and didn’t want to face the sales­man he let down.  The salesman’s night­mare got worse when later that day he saw the cus­tomer in another booth nego­ti­at­ing his first-ever pur­chases from a com­pet­ing brand.

Unfor­tu­nately, at the moment the cus­tomer is not a cus­tomer any more.  And the longer the account is allowed to stay delin­quent, the lower the like­li­hood he’ll return to being a cus­tomer.  While he can’t buy from your orga­ni­za­tion, the cus­tomer is work­ing to develop new sources and rela­tion­ships.  Pos­i­tive expe­ri­ences with new ven­dors can lead to per­ma­nent lost sales for his­tor­i­cal ven­dors.  And the incen­tive to pay invoices to ‘his­tor­i­cal’ ven­dors dur­ing cash-crunches also goes down.

One enter­pris­ing credit man­ager we know has taken a novel approach to the delin­quent account process.  Their goal is to ‘Save Cus­tomers’ for the sales depart­ment.  He believes it is much eas­ier to res­ur­rect a pre­vi­ous cus­tomer than to gen­er­ate a new one, and in the process, gain the respect and appre­ci­a­tion of the sales depart­ment and senior management.

Here’s the 4 step process he uses to Save Customers:

1.  Credit avail­abil­ity is auto­mat­i­cally sus­pended when accounts have invoices 15 days past due;
2.  Inter­nal col­lec­tions fol­lows a pre­de­ter­mined let­ter, fax, email and phone call  col­lec­tion pro­ce­dure with exact tim­ing that is rig­or­ously implemented;
3. Accounts are turned over to select col­lec­tion agen­cies auto­mat­i­cally when accounts are 90 days past due.  Sales­peo­ple are told “this cus­tomer needs spe­cial atten­tion” so they can become a cus­tomer again;
4. Col­lec­tion agen­cies are instructed that while col­lect­ing is the high­est pri­or­ity, pre­serv­ing rela­tion­ships is also of para­mount impor­tance.  Only highly trained col­lec­tors are per­mit­ted to han­dle these accounts.

The results of this pro­gram have been astound­ing for over a decade.   Over 70% of claims are col­lected within 30 days of place­ment with the agen­cies (includ­ing our agency), and over 60% of these com­pa­nies place new orders within 90 days.  Over 85% of all claims are col­lected, so actual write-offs are min­i­mal.  It is extremely rare that a cus­tomer ever allows their account to become delin­quent again — they know this com­pany means busi­ness when it comes to its receiv­ables terms.

An added ben­e­fit is that senior man­age­ment real­izes the fees paid to col­lec­tion agen­cies to save a cus­tomer were nom­i­nal in com­par­i­son to what it costs to get a new cus­tomer.  So now when a sales­per­son hears that “this cus­tomer needs spe­cial atten­tion”, they know they are likely to have a “saved cus­tomer” and new orders in the next quar­ter.  And the Credit Man­ager is per­ceived as profit con­trib­u­tor and strate­gic thinker, with the respect and com­pen­sa­tion that comes with that accomplishment.