Billing Collection - 8 Ways To Get $$ Faster
Jack T. Eigles
With competitive pressures greater than ever, firms are being forced to squeeze every dollar of profit from smaller gross margins. By managing their credit and collections more efficiently—including proactively preventing collections altogether—firms can maximize their profits while minimizing bad debt write-offs. Firms should be able to increase their size and volume while maintaining the current size of their collections group, rather than have collection activity grow in proportion to their top line growth.
The following are some proven methods to effectively manage credits and collection, leaving you with more cash in the bank:
1. Communicate With New Customers Upfront
While a smooth collections process certainly helps to maintain a positive cash flow, evaluating new customers’ credit and communicating effectively with them allows many collections issues to be circumvented altogether, securing the firm’s financial resources.
Firms should send all new customers a welcome letter that reiterates the agreed-upon payment schedule and provides the names of the internal staff members responsible for payment concerns. Providing this information encourages customers to be proactive in addressing billing problems and communicates the firm’s interest in seeing such issues resolved as soon as possible, setting the proper tone for the relationship between firm and customer. As a result, customers are more apt to pay the firm after receiving an initial invoice, leading to fewer write-offs and a lesser need for collections follow-ups.
2. Make Sure Credit And Sales Are Working Together
Instead of rushing to fill an order, salespeople should submit customers’ requests for preliminary credit or credit pre-approval before the firm closes on a deal. This proactive step allows the firm to ascertain its ability to offer needed credit and provides the salesperson with the opportunity to attain appropriate financial information—such as personal guarantees and security—from the customer.
3. Take Advantage Of Credit Reports And Trade References
While credit reports are not perfect, they do give firms access to some accurate and revealing information about their new customers, including public filings, liens, lawsuits and their payment history with vendors. Coupled with calls to banks and trade references, this information can help firms make more informed credit decisions, minimizing delinquencies and bad debt potential. Particularly if these sources reveal past payment issues, the firm should set a conservative credit limit, if it chooses to extend credit at all. This limit can always be increased if the customer performs well.
4. Make Your Collections Calls More Effective
Instead of being aggressive or allowing the customer to make excuses, the successful collector places a low-key and purposeful collections call that establishes clear communication with the customer and invites him to explain the circumstances leading to non-payment. This tactic provides the opportunity for the customer to provide a legitimate response, such as his having returned a defective product, for which no credit has been issued. Meanwhile, even if the customer has an invalid reason for non-payment, an open conversation will allow the collector to develop an effective game-plan to resolve the issue to each party’s satisfaction.
The following is a proven opening for a first collections call:
“Good morning Joe. This is Jack Eigles at Acme Manufacturing. I was reviewing my accounts receivable and I noted you have a balance of $2,500 in our 60 day column and am calling to check on the status? (Stop talking and LISTEN).
By simply stating the balance, the collector encourages the customer to explain why the invoice is not paid—there are a dozen reasons beyond his not having the money.
5. Hire Well-Trained Collectors (Or Train Them Yourself)
While it may seem like an easy money-saver, hiring inexperienced collectors will cost your firm in the long run. Seminars by the NACM (National Association of Credit Management), D&B (Dun & Bradstreet), or by any qualified consulting firm, are available to train employees without previous collection experience.
6. Supervise Your Collections
Regular and continual follow-up is essential for facilitating effective collections. Ensure that your collection employees are not too overburdened with other tasks to appropriately respond to collections issues (or are not otherwise avoiding collections).
7. Let Your Salespeople Support Collections Efforts
In order to protect the salesperson/customer relationship, firms usually keep collections and sales as separate as possible. By using their salespeople as their “eyes and ears on the street,” however, firms can learn important information about developing problems with customers, enabling the firm to address budding issues before they escalate. Also, because of the pre-existing relationship between them, a visit from the salesperson, either alone or in tandem with the collections person, can actually help spur collections when initial efforts are unsuccessful.
8. Consider Outside Resources When You ‘Hit The Wall’
If internal collection efforts fail to result in a payment within a reasonable length of time (say by 90 days on net 30 terms), you may benefit from involving a quality third party to assist you. Oftentimes, progression beyond internal efforts is enough to motivate payment.
Depending on the size of the outstanding account, the third-party may recommend legal action if it is unable to solve the issue. Many third- party firms maintain a national network of collection attorneys and can act as a collections clearinghouse for you, centralizing all of your firm’s outside activity. Keep in mind, you can obtain quality third-party, contingent-fee services for 15%, not the 20% or 25% some firms advertise.
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