The Criteria for an Effective Program
An effective collection program has three main qualities:
- A clearly defined strategic program for each type of account
- A well-ordered progression that is timely and time effective
- A clearly understood central message that pervades the entire program
Clearly Defined Strategic Programs
There are three strategic programs that are used to collect delinquent accounts receivable. The paper program is highly effective and cost efficient. The telephone program is the focal point of any effective program. Customer visits are the most effective strategy available for an entire class of misunderstood customers.
A well-structured collection program uses all three of these collection strategies. Each strategy is most effective for a specific type of delinquent account. It all comes down to dollars invested versus dollars outstanding. This means you use the least expensive, the paper program, to collect the low-dollar accounts, and the higher cost methods to collect the high balance, or high-volume accounts.
If your collection program is to be the most effective you can design, you must take the time to analyze your receivables file, and determine how each type of account is going to be handled. I will show you a process that you can use to analyze your accounts receivable file to determine the appropriate action for each of your accounts.
our collection efforts must be time effective since your personal time is limited. You must invest it in those activities that will return the best dollars per hour. After all, time is one of your finite resources. If you spend the same amount of time attempting to collect your $10 accounts as you do collecting your $10,000 accounts, you are wasting a valuable resource.
A Well-Ordered Progression
To make your personal efforts time efficient, your collection program must also be timely. Your delinquent notices must go out on time, your letter program must be timely, and your collection calls must be made on a regular schedule.
Each step of your collection program must be in a logical sequence, because each step builds on the previous ones. It would be very foolhardy to simply go through your accounts once a month and send everyone with a 90day delinquency a COD letter.
It is important to follow an organized program that progressively leads up to the final COD letter where necessary, while allowing the delinquent customer to respond in a positive manner. You must always give your customers a chance to tell you the reason for their nonpayment.
The Central Message
Your collection program must be consistent and it must carry the same message throughout. This message should say, “Hello, our records indicate that your account is past due. If there is a problem with the billing, or if you cannot pay the total amount at this time, please contact (a real person’s name) at (telephone number) and we will work together to come to a solution. If there is no problem, please pay the outstanding amount by return mail. Thank you.”
This is a short, generic message that you can use as the basis for your first notice. It condenses your central message, and the tone of your entire collection program. Until you have a firm reason to believe that a customer is not playing straight with you, always treat the customer I as if you know he or she is going to respond to everything you say in a positive manner. It’s the self-fulfilling prophecy in action. It gets results.
You should use the following guidelines in all your collection activities:
- Be personal and friendly — Remember without most of these folks, your company would not be in business. Most of your delinquent customers are not chronically delinquent.
- Motivate them to action — Your collection program is in place to get the delinquent customers to bring their delinquent accounts current as quickly as possible. Each part of your program must motivate them to do this.
- Offer a way to save face — This is especially true in the telephone calls and the personal visits. Approach your customers in the same manner that you would approach a person whose friendship you value. Allow them to offer a solution. Attempt to find the real problem, and propose a solution that gives them a way out.
This is particularly important in situations where your company has allowed a delinquency to go on over an extended period of time. By the time someone decides to take action, the customer may be in over his or her head. Make the customer a part of the solution. Work together to come to a plan that is fair for both of you. - Fortify a positive self-image — You must always feed the positive self-image of your customers. Some of them I don’t have much positive self-image left, but if you hold out a hand and offer fortification to their souls they will react in kind. It might sound corny, but it works.
- Appeal to Their Status Needs — Oh yes! Stroke ‘em. As it says in “The Psychology of Collections,” there are all types of people, and many, many reasons why they are delinquent. But they all have certain common needs. And pushing the right button will bring in the jackpot. It is the way successful salespeople have performed for years. Remember-you are a sales representative-use your sales tools.
An effective program is comprised of the following components.
- The Paper Program
- The Telephone Program
- Effective Telephone Techniques
- Personal Visits to Customers
- Skip Tracing
- The Use of Outside Collections Services
- Special Handling Accounts
Get the full explanation of each part of the program at creditmgmtinsitute.com.
George
Did you find this article informative? Too short? Not enough information? Check out the Credit Management Institute Website for a full-featured, detailed accounts receivable program that will make your life easier, and increase the cash flow for your company. You’ll find it at: http://creditmgmtinstitute.com
You can reach George at georgeobancroft@gmail.com
