Improving Collection Performance

To some extent, every company has experienced challenges as a result of the global economic recession. During periods of recession or economic uncertainty, it may become increasingly difficult to collect from delinquent debtors. Therefore, credit professionals must constantly look for ways to improve their collection skills in order to improve their collection performance. Here are some ideas to improve collection performance and reduce delinquencies:

• Make certain your credit application and as well as your invoices list your terms of sale [your payment terms].
• Be sure that invoice clearly state the due date and the discount date if applicable.
• Make certain that your invoices list your remittance address.
• If you have a bank lockbox, make sure customers are sending payments to it.  If they are not, they are gaining float on their payments. 
• Be sure that your order entry team does not process purchase orders with incorrect price or incorrect payment terms.  A purchase order should not be processed until order entry receives a written amendment to the P.O. showing the correct price, or the corrected terms of sale.
• The credit department must pay attention to how a debtor is paying other creditors. If a company is being paid on time by a debtor while the majority of other creditors are not, it is unlikely that this will last long.  
• Once an account has become seriously past due, after the debt is paid but before releasing any new orders, the credit file should be updated and reviewed.   The purpose of this process is to fomulate a decision about whether the customer still qualifies for open account terms.
• Try to update each active customer's credit file no less frequently than once a year.
• Shorten the grace period or time between the invoice due date and the first contact by the collector.
• Attempt to resolve disputes quickly.  The older disputes and deductions become, the harder they are to collect.
• Always ask the customer to immediately pay the undisputed portion of outstanding invoice.

One technique that has been used with success is to switch territories for collectors from time to time.  Some might argue that each collector knows their accounts and therefore the idea of switching territories is ill advised.  The truth is that any efficiency that may be lost as a result of transferring accounts may be more than offset by the fact that a new collector brings with them different collection techniques and a new perspective. 

Any easy way to become a better collector is to become a better negotiator. Successful negotiators not only know what they want and need to accomplish before beginning a negotiation, they are comfortable with the negotiation process.  They are confident that they have accurate information, understand their employer’s expectations and requirements, and are certain they know the limits of their authority.

One of the most common problems for anyone trying to collect money involves negotiating with someone who does not have the authority to make commitments, or to keep them. Not surprisingly, debtors often deliberately place collectors in contact with employees of the debtor company that have only limited authority. Your goal is to understand your contact’s authority to make payment commitments before beginning the negotiation process.

Another common mistake involves making concessions too soon. Many collectors make a very significant concession before the discussion has even begun. How? By not beginning the discussion by asking for payment in full of the entire past due balance. Many collectors establish cut-offs on past due balances. For example, the collector may only ask about the status of invoices over fifteen days past due, or longer in some cases. A related mistake in debt collection involves giving your past due customers the unsolicited concession of a grace period before making contact. Many collectors routinely wait fifteen or even thirty days before contacting a customer about a past due balance. This concession benefits only the customer, and the simple solution is to contact customers as soon as possible once invoices become delinquent.

One final thought:  Establish a formal training program for new collectors.  Unfortunately, new collectors are often expected to learn on the job – through the process of trial and error.  The problem with trial and error are the errors an untrained collector can make which often take the form of missed opportunities to collect balances sooner, and lost customer goodwill from overly aggressive collection efforts.

© 2011.  Michael C. Dennis.  All Rights Reserved.  Mr. Dennis is the author of several books relating to credit management.  He can be reached by email at mcdennis13@yahoo.com