Earlier this year we offered a column titled “Getting Real About Receivables.” This month’s column will follow up with instructions on the “why” and the “how” when developing a series of effective collection communications.
Collecting money is a form of protecting money. In one demonstration of how rapidly black and white can morph into gray, a transaction goes from being your material and their money to being their customer’s kitchen and their business payroll account with little for you to claim!
The probability of recovering a past due balance diminishes at a rate of 1 percent every three days — that’s 10 percent every month! We have chosen to purposefully concentrate on meaningful, enduring and essential ways that you can safeguard your cash assets. Clearly, things aren’t getting any easier out there and when the economy can’t seem to find its balance cash is the ultimate cane. Slow receivables not only deny your company access to its very own working capital, but the collection process itself is time-consuming and expensive as it diverts crucial time and energy to “May I please have my money?” activities.
Saving money and protecting resources may seem dull, but it still feels good when doing it. What follows is well worth the time handling receivables. In smaller organizations, many folks performing collections were handed the job out of frustration one day and they’ve had it ever since. For shareholders, collecting what’s owed them is often deeply personal. They do the work even if they are unsuited for the talent it takes. In fact, most collections personnel have not received much in the way of background or formal training — nor have they been given a template or instruction on how to construct the company’s communications. They may not know of the planning and the psychology that went into developing the messages and meanings between the lines. The communications recap that follows might help change that.
THEIR PROBLEMS REALLY DO BECOME YOUR PROBLEMS
You work hard for more sales and suddenly you’re in the office more than the shop. You’ve become dependent upon others for your quality and reputation. Competition arrives and the waters become more muddied. Costs rise more than any new-found efficiencies from increased volume and fabled economies of scale will allow. Accordingly, your profit margins get squeezed. Taxes. Payroll. New Equipment. Workers’ Compensation. Did somebody say recession? You begin noticing that certain customers don’t seem to manage their money the way you are now forced to manage yours. Why these jet-setters are invariably your biggest accounts remains a mystery. You end up politely asking the customers to send you a check for material you sweated over and delivered 75 days ago. Why does this make you feel embarrassed? You’ve known the owner for years. The fact that he and his wife drive matching Mercedes suddenly seems less cool. Mercedes Man offers to send you half today but then brazenly asks you to hold the check until he okay’s its release. Rats!
TIME FOR A NEW GAME PLAN
Did you win that little game of telephone collections with Mercedes Man? Most receivables experts would say he took you down. Your first concern was protecting the relationship you two have had for the last 15 years and so you swallowed your pride and your own need for operating funds and you meekly settled for whatever they could send. It’s obvious that you need an overall plan, an action timeline and a “script” for all of your communications. You especially need an integrated set of prepared letters that successfully request those dollars. Let’s review what the letters (which can also convert to e-mails and phone conversations) can do for you when they’re well-planned and well-written.
Collection Letters Contribute Uniform Success!
In a world of differentiation and standing out from the crowd, sometimes uniformity is just the right medicine. The use of something approaching “standardized” is a great first step in the collection process. A standard collection series has two main objectives: to collect the money owed as promptly as possible and to retain the goodwill of the customer. A standard collection series generally involves a written six-stage procedure that is used by the business owner to encourage full and timely payment. The procedure, to be truly effective, must be started promptly, followed systematically, developed with increasing force, adapted to the customers and evaluated according to reactions from the customer base.
Besides all of the inferred benefits such a system can deliver, there is one side benefit that can easily be overlooked. A collection system that is well-developed and adhered to implies that the collection of your money is serious business. Other haphazard approaches can suggest that collection is not a priority. It is critical to design your collection process in a way that will retain the goodwill of the customer and provide for potential future business to flow. Of course, not all customers are the same. Higher volume or long-standing customers are very often worth the increased risk of waiting longer for payment.