Effective collection process

I always believe that effective and efficient collection process begins long before the sale is made. It begins with being proactive with the customer, being aware of the competition and being prepared with the contingencies. A good credit and collection policy must be proactive on what is happening in the industry, must be aware of what is happening within the company and most importantly must be clear on what is the profile of its prospective customer the company would like to have and grant credit. 

In most companies, the same personnel used in credit investigation and analysis are being used in the collection process. Oftentimes the company has account receivables department that is divided with one group responsible for credit investigation and approval and the other group responsible for receivables management or what is commonly known as collections group. Regardless, the credit application and file is not only a credit tool but more importantly it is an effective collection tool. The credit application and file serves both functions. The credit application should contain information that informs the collector who the customer is, not just their name but also their legal entity, the financial health, bank information, assets, and business partners. This information which includes their legal structure will play an important role in not only how the collector collects but also the collector’s success.

Moreover, collection effort should be regarded as a series of steps aimed at obtaining payment of accounts, while customer's goodwill is retained. The entire effort is a "coordinated process of parts" and is separated into a series of steps. The collection effort could start from reminder letters or a subtle customer service like reminder telephone call. Reminder letters are mostly used for commercial-related type of collections. Most reminders are sent on or before the 20th day (for 30 days term), given 3-5 days of postal service and about 2-3 days for courier service firms, your subject should receive your reminder letter before the account is due. Be sure that your letter serves its purpose: reminding an account that is to be due. Late reminder letter defeats its purpose and gives wrong signals much of a negative impression, besides it will create more problems than the desired results, as they can have an excuse to pay much late.

After reminding your clients, it is very common that majority of your debtors will give another week or two before they will pay or process the payment; this is a "normal" practice in the Philippines. However, if there are no positive results try to contact your subject/ debtor and ask him for the delay and inquire whether there are problems and or misunderstandings. If calling proved futile, or not possible, send demand letter. Using or sending letters via courier or registered mail is a good strategy. If after said demand letter failed, sending of another final demand letter is an option.

Furthermore, most companies retain legal services; part of their service is sending legal notices/claims. Lastly, they can study what action/s to undertake.

For comments, rejoinders and questions on credit & collection, email at [email protected].