TRY THIS 6-STAGE COMMUNICATION CYCLE
There exists a classic collection cycle that most U.S. businesses use and yet it’s rarely taught in a formal manner. I would like to change that by providing my best take on the progressive levels of an alarm system. If you’ve been too casual about receivables, use this layout to teach and to help form the basis of your own communications. While the standard collection series of letters can vary according to the respective customers and to other special circumstances, the six progressive stages of communication commonly include the following sequence.
Notification Stage: This initial stage carries with it an assumption that the customer will pay promptly. This business daydream usually involves sending a statement or invoice that identifies the facts and provides the approvals which guided the original sale. Easy.
Reminder Stage: If notification fails to produce a payment within terms, this stage demonstrates the assumption that the customer intends to pay but simply forgot. The type and number of reminders you send depend on the customer, the circumstances and your policies. Reminders (copies of invoices, postcards, brief form letters, etc.) are light in tone and work to preserve goodwill.
Inquiry Stage: Here assumptions about the delayed payment must change as it’s becoming obvious that the customer has not merely “overlooked the debt.” Generally, this stage assumes that unusual circumstances are behind the delay. The inquiry letter carries a spirit of friendly understanding and helpfulness, and essentially asks for the money that’s due or an explanation for the delay. For the right customer, understanding and goodwill can be an amazing investment.
Appeal Stage: A critical moment for both parties, the Appeal Stage often calls for individualized correspondence and creativity. The customer’s lack of response often demonstrates real trouble on their end. If so, the customer needs to be persuaded and the force of the collection process has to be increased. This may be your last real shot at a humanistic approach before attorneys start signing the letters. Economic self-interest is a critical point to now be stressed in your appeal letters. (Let’s settle up now to avoid bigger problems — and more public problems — with money, property, credit, etc.) Keep appeal letters focused: Develop one or two points and pound them emphatically. Stress the benefits the customer will receive if the debt is paid immediately. (Sell the value of continued goodwill, pride and reputation, fair play, the sanctity of a contract, accessible lines of credit, etc.) Be firm, but not harsh, using only the “hint” of a threat. Offer creative ways to manage the debt to produce the very best long-term outcome.
Urgency Stage: A very real likelihood exists that your money might not be coming back. Your watch now reads quarter past urgent — time for a serious turn in tone. Force now begins overshadowing goodwill (but the notion of goodwill does not disappear altogether) and phrases like “last chance” make their debut. If you’ve had others signing letters to this point, now is the time to upgrade to the owner’s signature. Urgency letters may contain deadlines for payment (perhaps payment plans), reimbursement of collection costs and legal action. As for the overall tone, three words sum it up . . . you mean business. Shoot for insistence and immediacy. If you can say it in four words instead of five, do it! You’ve earned the right to come off sounding abrupt and terse.
Ultimatum Stage: You’re now at the end of a long road that’s brought only aggravation. If a supplier has a final screw available to them anymore, now’s the time to turn it and apply the squeeze. Generally, you will now send a letter stating to the customer the date that you will turn over the debt to your attorney or a collection agency, unless they satisfy the debt in full beforehand. Your correspondence should review all the facts surrounding the transaction and the unpaid bill(s). Short but not sweet. This is business and you mean business.
MAKE IT WORK
An effective collection letter series has two main objectives: Collect the receivables owed by customers and do all that’s possible to retain the goodwill of those customers while utilizing the system. Hopefully, you can see how the understanding and integration of a standardized collection series can help to encourage full and timely payment. To do so requires the procedure to start promptly (35 days from original invoice date seems to work well), be followed systematically, developed with increasing force and adapted to best fit your customer base.
Your Detoured Dream Is Still A Good Dream
Chasing your own money is for the birds. In all likelihood, your business dreams began with a simple notion — enthused customers would gladly pay you a fair dollar for your dedication to the practice and perfection of your craft. It’s an age-old aspiration and, in an economic setting that is firing on all cylinders, it’s a solid dream. But then all this unwanted complexity invades your marketplace leaving it with more monkey wrenches than “Chimp World Chiropractic” after a big night of banana wrasslin’. At this point you might be asking yourself, when did my business success become contingent upon my ability to craft a meaningful and motivational series of collection letters instead of my ability to craft and install beautiful, high-quality countertops? Maybe you wanted to make something real with your hands, not be some letter-writing, numbers-crunching nerd worrying about delinquent accounts and positive cash flow. Well, business survival today requires owners who specialize in everything — that’s not a nerd, that’s a Renaissance Man or Woman — a damn fine dream to chase since you’re out there chasing the money anyway.
About the author: Chris Traynor, SPHR, is the Director for Whip-Smart Management Consulting, Wayne, N.J., and has 25 years of experience in the solid surface industry as a consultant to fabricators, distributors and manufacturers. He can be reached at firstname.lastname@example.org.