Do I Employ a Debt Collector – Part 3
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Hang in there’ Collection
If you have a policy that employs a debt collector/solicitor after one or two letters and one or two telephone calls then that is fair (especially with the ‘professional debtor’: the sooner you take action, the more seriously you will be taken). However, with customers who have cash flow problems and if you have the time and resource (or the ‘bit between your teeth’) to see the collection process through to the end, consider the following.
Some customers cannot pay when they should. The reasons range from temporary cash flow problem to insolvency.
The normal collection activity is to send a few letters and make a few telephone calls: then at some stage you take legal action, employ a debt collector, write off the account or put the account to the side ‘for a while’.
If you were to take immediate positive action to recover your money would be unlikely to receive payment.
On a number of occasions, I have seen as many as ten letters and twenty telephone calls to secure the payment of one debt (the debts were considered to be viable).
This type of collection strategy is based on using the maximum amount of pressure, over the longest period of time, whilst maintaining contact with the customer, and the acceptance by the creditor that sufficient time and effort will be required to achieve the collection goal.
If maximum pressure is used over a short period you will almost certainly leave the customer with little option other than to ignore you completely.
The first stage is the EARLY identification of the customer who you know is going to be a payment problem. You would then send either a strong arrears letter, or telephone the customer and have a ‘heart to heart’ talk, finalized with an agreement/payment plan to pay the debt.
If you were to send a mild arrears letter, the customer would take no notice: it is more than likely that the customer has a number of creditors contacting them and would be experienced in identifying those creditors that are serious. For this last reason, you do not send mild letters, or have ‘friendly’ telephone calls.
The next stage (assuming the customer has not paid), is to do the reverse of your first action: if you sent a strong letter, then have a ‘heart to heart’ telephone call, likewise, send a strong letter if your first action was a telephone call. This stage can repeat itself on a number of occasions: as long as the signal you are giving to the customer is one of you (the supplier) being in control, and that if you (the supplier) believed for one moment that the customer was not trying to find a way to pay the debt, you would sue them without further delay.
By now you will h ave built a relationship with the customer. The customer will be in no doubt as to your expectations of them. This relationship should allow you to question the customer and expect a response.
At some stage, you will either start getting payment from the customer (be that full payment or instalment) or your customer will cease to trade. Your skill is to assess as soon as possible which way the customer will go.
When talking to a customer with cash-flow problems you must control yourself at all times. If your customer was to say in response to your lack of control (however deserved) “take me to court, I don’t care”: you will have a very difficult job to recover your money.
This strategy has risks; however, the skills that you or your staff will acquire in a short period will undoubtedly greatly benefit your future cash flow. It is only through creditor/debtor negotiating that true collection skills can be obtained and fine-tuned.
The strategy can also be applied to good accounts that are suffering genuine, temporary cash-flow problems. However, you should not send, or say anything that is too strong. That said, you must not send, or say anything that is mild. Tell the customer that you want to maintain a business relationship, and that you can help by allowing a period of time, or instalments over a few months (with cash for future sales until the cash flow improves).
If you allow a good customer extra time to pay and they default, find out why. They may only be a few days away from ending their problems: they may not have all of the agreed instalment and thought you would not accept what they could pay. Would you accept a smaller payment if the customer was still buying from you on a cash basis ? I think you would.
Article Index
- Telephone & Letter Collection Tips
- Mix of Telephone and Letter Collection - Part 2
- Do I Employ a Debt Collector – Part 3
- Related Articles
- Popular Articles in Cash Flow Control
