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A Guide To Improve Collection Procedures
- Don’t assume that accounts know your credit policy
While there are usually established trade practices un every industry, it is sometimes the difference that make customers choose one supplier over another. So it is important that your accounts know what your credit policy is, to eliminate misunderstandings.
- Know your customers—individually
At the star of each business relationship, build credit files on your customers. No Company should extend credit without ascertaining reliability. In the event, however, those records have shown an account’s payments to be irregular, it is advisable to keep that account under close scrutiny, with immediate follow-up should payment be unusually slow. If the customer is a valued one of long standing, he demands extra consideration.
- Keep your credit record current
Changing market conditions and management can abruptly alter the course of a company’s health and conduct. So it’s wise to keep abreast of trade reports pertaining to specific companies.
- In periods of concern, tighten your collection procedures
If business conditions are uncertain, it is time to review your collection Procedures. You can’t guard against unforeseen events, but you can minimize your company’s chance of loss by adherence to your policies. Start by revising your collection letters, making them stronger and more action compelling.
- Try to discourage extended payment terms
Screen requests for extended payment terms carefully and try to get your sales department to discourage these requests. Too many endanger your company’s cash flow position, and lead to undesirable precedents in accounts relationships as well.
- Pursue partial payments with requests for the balance
Generally, customers figure that by making partial payments, they will “get the heat off them.” While such payments do show good faith—and is better than none—they should not slow your effort to collect the complete outstanding balance. The best practice is to acknowledge partial payments promptly—and follow-up with communication to accelerate payment of the remainder.
- Shorten your collection schedule
Cut the time after an account’s due date by shortening the period from that date for continued extension of credit privileges. This “shock treatment” transmitted to a principle can sometimes exert needed leverage on accounts, particularly those who rely heavily on the supplies or services your company provides.
- Keep your lines of communication open
While you’re talking, there’s still hope. But make sure you’re getting through to the right person at your account—the decision maker.
- Try to resolve disputed matters quickly
If the basis of non-payment is a dispute over quality of merchandise or service, price, or delivery, a mutually-agreeable settlement should be arrived at promptly. The customer may use a minor dispute to withhold a substantial payment. Insist that the undisputed portion be paid immediately, and that the balance will be negotiated.
- What to do when all else has failed
Your judgment will tell you when you have exhausted all the means at your disposal to negotiate a satisfactory payment, while maintaining the account as a customer. At this point you can take positive action by referring the account to a professional collection firm.
When To Employ A Collection Agency
- When indebtedness is 90-120 days delinquent.
- When a customer demonstrates bad faith and loses credibility.
- When costs of continued efforts do not justify further time investment.
- When a customer discloses financial difficulty.
- When a customer is ignoring your calls.
- When a customer is lying to you.
- When a customer ignores your final demand.
- When a customer is falsely claiming defective products or services.
- When a customer threatens bankruptcy.
- When a customer is passing NSF checks.
- When a customer is making partial remittance.
- When a customer starts skipping payment.
- When a customer refuses to sign a personal guarantee.
- When a competitor is calling you for a reference.
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