Avoiding These 8 Collection Mistakes Will Pay Dividends

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There is often a very fine line between getting paid and getting paid much later or not at all. Frequently there is a small window of opportunity for getting paid sooner rather than later. Any number of factors can put your company on the wrong side of the equation:

Your competition also wants to get paid. If their collection efforts are more aggressive than yours, the customer will tend to pay your competitor sooner, while you end up waiting for this mutual customer to accumulate additional funds to pay you.
If you are not aware of your customers’ payment practices, you can miss having them get your invoice(s) into their payment queue for the current cycle. Slip ups in invoice delivery and accuracy can be costly.

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The wrong phrase or tone can affect how your customer responds to a request for payment, even if they have the money and willingness to pay.
Your customer may be in financial distress and having cash flow issues. Not initiating collection activities when you should or failure to consistently follow-up for payment could mean you don’t get paid at all.
All these situations are avoidable. They are an important reason for formulating credit and collection policies and procedures, but not every lapse is an act of commission. Acts of omission can also dampen receivables performance.

Read on to learn:

Eight collection miscues to avoid
Effective collection calling techniques
A tip for documenting your customers acknowledgement of their debt
How to get the most out of your collection efforts
Don’t Make These Collection Mistakes

To give yourself every possible chance of getting paid sooner rather than later, or not at all, make sure that you avoid these eight common mistakes:

Failing to request payment as soon as the invoice goes past due. When you let a past due balance slide without requesting payment, you are sending a message to your customer that you are not serious about your terms. Do that repeatedly, and you will establish a pattern of late payments from your customers that is hard to break. Instead you want to establish a pattern of prompt payment from your customers, so the first time an account goes past due and every time after that you need to be reminding them that the due date has been reached and their payment is expected. It’s okay to let a few days pass before you begin collections, but 3 to 7 days is more than enough of a grace period.
Being afraid of dialing for dollars. The reason emails are used for dunning is that there isn’t always enough time to phone every past due customer. Dunning notices, managed properly can be effective, but not nearly as effective as a phone call. That is why we recommend an overall collection strategy that makes use of both calls and emails, with an emphasis on calls for larger balance and higher risk accounts. Emails can then be used to fill in the gaps with the accounts that have smaller balances and pose less of a delinquency risk. That said, we recognize that making collection calls can be uncomfortable, if not downright scary. Will the customer get offended? What if the customer is simply uncooperative? How forceful should I be? Start by clearing your head of such negative thoughts. For the most part, commercial collections involve an employee of the supplier calling an employee of the buyer. It’s business, not personal, so be professional. Have all the details at hand so you can make a straightforward request for payment…and remember to say please. If it is the first call and the invoice has just gone past due, tell them your call is a “courtesy reminder.” You simply want to come across as diligent, vigilant and competent. When you set that type of tone, your customer will respond accordingly. Good customers will not be surprised by your call, though if they realized they have let your invoice go past due they may be hoping you won’t call and are probably more uncomfortable than the most timid collector. And don’t be surprised, if after calling the same customer several times, that you have built a solid working relationship. Then making a collection call is simply asking a known acquaintance to help you out.
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Not scheduling the next collection activity after your call. Whatever the result of your call with the customer, you need to schedule a follow-up. If they promise to pay, schedule your follow-up a day or two (no more) after the promise date. Should they pay as promised, you simply cancel the follow-up call. If they can’t commit to a payment, schedule a follow-up for 7 to 10 days later to see if their situation has changed. If there is a dispute, you will have to investigate it. If you do not accept their claim, you will need to send them the documentation supporting your decision, request immediate payment and schedule a follow-up for 3 to 7 days later in case they don’t pay or at least respond. Failing to schedule the next collection activity is a waste of your prior collection efforts. If your AR system does not have follow-up capabilities, there are good PC-based calendar applications that will suffice.
Not logging the outcome and insights gained during collection calls. Besides scheduling follow-up activities, you need to make a record of your collection calls. This record should include your request and the customer’s response. It should also include any insights you gain from the call (e.g., the customer only cuts checks twice a month, they always have cash flow problems in the Summer, the competition hired their two top sales people, etc.). Call logs provide a wealth of customer intelligence that you can use to avoid subsequent collection issues and improve your collection effectiveness should the customer again become delinquent. Collection software solutions typically log collection activities. Lacking collection software, your CRM system will suffice. Most AR systems now also have some capacity for logging notes, but if you are still coming up empty, it is very easy to set up a file on your PC where you can create call logs for each customer.
Not confirming verbal promises in writing. Every payment promise a customer makes needs to be documented in writing…immediately after the call. Simply use an email template for confirming the promise made on the call. Insert “Confirmation of Your Payment” in the subject line. Then all you will need to do before hitting send is cut and paste the items in question from your receivables software, add the total amount promised, and the name of your customer’s representative. It should only take 15 or 20 seconds to process each email…time well spent. This documentation will not only increase the probability your customer will keep their promise to pay, but is also a valuable component of the paper trail that is needed should you have to place the account with a collection agency or file a law suit. The email is evidence your customer verbally acknowledged the debt.
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Making empty threats. If you say you are going to do it, you need to do it. Don’t threaten a past due account with legal action if you are not willing and ready to turn the matter over to an attorney. Don’t threaten to put an order on credit hold until payment in full is received and then release the order when you get a partial payment. Threatening something and not following through will just make you seem weak. Threats are promises, and the best collectors keep all their promises.
Wanting to be liked. Instead, you should want to be respected. If a customer owes you money, there isn’t time to engage in small talk until after they have taken care of business. Save the niceties for sales and customer service calls where it is appropriate to tell the customer how important they are to your firm. To be effective in both the short and long run, collection calls need to be formal and professional. Be polite, even friendly, but don’t make it a social call. It’s business, not personal.
Sending your customers mixed messages. The only message a collector should convey to a customer is that their payments are expected to be made by each invoice’s due data. You do not want to give customers any excuse to delay making payments. That’s why you should always be straightforward in asking for payment in full…today. Correspondence, including emails, therefore needs to be unambiguous. If you are threatening to turn a customer’s account over to a collection agency unless payment is received by a specific date, you cannot sign off with ‘Kind regards,” “Many thanks,” or “Thanking you in advance.” You want the customer to take you seriously, and the simple formality of using “Sincerely” as your valediction is consistent with your message. Similarly, a “Hi Bob” or “Hey Sally” won’t do. Stick with “Dear” as your salutation. Consistent messaging is much more likely to be effective then sending mixed messages.
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The Importance of Executing Well

We’ve stated in previous posts that collections is first and foremost a numbers game…if you do it right. Calling early and calling often in a strategic manner, combined with an email dunning campaign, will keep the payments coming as long as you are also paying attention to the details. Get sloppy or lazy or not go by the numbers, and the problems will mount.

The eight collection mistakes listed in this article are examples of how good intentions often go awry. All involve making the effort to collect. Then, because of the mistakes, the labor put into collections doesn’t get to bear all its fruit.

Repeated mistakes, miscues, and omissions will accumulate and can become bad habits. As a result your collection efforts will gradually become less effective and cause cash flow to suffer. Not handling collection activities the right way from the start is also a waste of your precious time, requiring you take additional efforts to recover payments from delinquent customers. The good news is that if you avoid these mistakes your collection efforts will generate improvements in cash flow.

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