Always collect the money (Part 2)

As what I have said in the past, the first and foremost objective of each and every collector is to collect the money as close to the agreed terms as much as possible. Having said that, I agree that from time to time collecting past due accounts and handling delinquent debtors can be very taxing. More often than not, this can give the company “headache” and may cause serious cash flow problems. That is why a lot of companies nowadays have thought of (or already have) outsourcing this particular activity.

Likewise, I know of a lot of companies who engaged in the services of third party collection agencies to collect for them. Unfortunately based on personal experience, some of these collection agencies are neither effective nor provide value in terms of customer retention. Obviously, most third party collection agencies use the strategy: “if you will not pay, we will sue you”. Unfortunately, this strategy is one of the more ineffective strategies, as this hardly connects at all. Most delinquent debtors know that this is “just lip service”. Most delinquent clients are aware that if the amount is not even significant enough, no collection agency will sue them as it’s costly to pursue.

My advice, never write anything in your demand letter that you are not even sure you will be doing. For example, if you say, you will “refer it to legal”, make sure, you have a legal unit (whether in-house or outsourced) to handle the account. This is what we call collection escalation. And the key here is to actually do whatever you promise you will be doing. Bottom line, the delinquent client must be given enough opportunity to settle the account, be it payment in full, maybe partial payment arrangement or even good faith payment. But if push comes to shove that you need to escalate in order to collect, do it immediately or with great sense of urgency.

Below are some simple tips in collecting delinquent accounts.

Tip No. 1: Always offer debtor a clear choice of actions. As much as possible train your collectors to do away with the confrontational approach of: “if you will not pay/settle, we will file a case in court or we will endorse this for legal action; or the most brutal and common is we will just see you in court.... why not instead of stating the obvious, let the debtor be given alternatives and let him choose his/her actions, surely by using diplomacy and tact rather than threat, even though you are serious in pursuing legal action, it will surely not destroy any relationships and/or goodwill.

Tip No 2: Endeavor to get a reasonable short repayment program because a long one is bound to likely fail. Sometimes, some collectors would just agree on anything just to get a promise of payment. Getting a payment promise is one thing, but actually being paid is another. The best way is to ask some probing questions on the client’s current financial condition and always ask if client is willing to pay immediately if a good deal is offered. For example, ask the client this question: can you pay 50% now, and 50% within 30 days if the company is willing to waive the interest and penalties?

Tip No 3:  Appeal to client’s sensibilities by understanding or studying your delinquent debtor. Some delinquent clients still responds positively if you appeal to their senses, such as (a) appeal to sense of duty and obligation;  (b) appeal to one’s pride and honor; (c) appeal to good credit standing (d) instill fear by telling debtor that he/she could lose something (i.e. credit reputation) or (e) avoiding something (i.e. court case record).

For comments, rejoinders and questions on credit and collection matters, email to [email protected].