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Monthly Archives: October 2013

Best Ways to Approach Collecting Your Ledger – Telephone v Letters

letter-telephone

The telephone can be a very powerful tool and without question is the most effective method of collecting outstanding debts, but you must consider the time element involved in calling everyone in your customer base.

Ask yourself two questions –

  1. How many customers do you have?
  2. What are the values of your debts?

Based on the answer to these questions, you can structure your overall approach to the collections.

If your ledger consists of 10 – 20 high value accounts, ensure you call them all (or even visit them) personally. These are key accounts to your business and should be treated well in order to establish sound relationships with your clients and ensure prompt payment of the accounts.

If you have a good working relationship with a key client, do your homework, by building rapport with them. For example, if they tell you personal information about themselves (birthdays, anniversaries, names of children, or the area they live in) note them on the account and use them in future conversations. It seems simple, but this will highlight to the client that you are generally interested in what they have to say, which builds a better relationship with them, as well as keeping you a step ahead should you ever need to make a collection from them.

If your ledger is made up of 1000 – 2000 low turnover accounts, then it would be impractical and not a good use of your time to call them all personally. A structured letter cycle approach should be adopted. Please see my previous blogs Reminder Letters for Invoices Part 1 & 2 for advice on this.

Most commonly there will be a mixture of phone calls and letters. You should prioritise your workload to find a balance, ensuring your high value, high risk and prestigious clients always receive a personal call, whilst sending letters, faxes or email to your low value, low exposure customers.

Get it Right from the Start

The chances are if an account is not set up or chased properly at the point of opening, then its likely that it will fall into arrears. Make sure the correct checks are carried out when opening the account –

  1. Do you have a credit application form completed?
  2. Have you checked and called the telephone numbers supplied and do they relate to this particular client? (Always ensuring you have more than one number, and a landline as well as a mobile)
  3. Have you checked the references supplied on the credit application form? Don’t just telephone the numbers supplied to check this out, check on Google maps etc that the addresses and companies supplied for the references actually exist. Fraudsters will supply you with fake address and company details for references and the number you call will probably just go straight to them or someone working with them and they will just tell you what you want to hear in the hope that you open the account and send them the goods.
  4. Credit Check the Limited Company or individual and arrange a credit limit and payment terms based on your findings

Remember, how much profit can be lost from overdue accounts or bad debts, so its imperative you get this correct first time.

If there is any ambiguity in your contracts or payment terms, it may severely hinder your future collection efforts. If your quotes, order forms, invoices and statements send the wrong message or information, the confusion may be costly.

Ensure your business is not just selling at any cost, and expecting to pick up the pieces. If you think a particular account is high risk, look at your costs and factor in a higher profit margin where possible, so if the account goes bad then at least you will have recouped some of your losses already.

If you have a high account query rate, and you are experiencing consistent slow payment, there will usually be a reason for this. Its your task to ascertain the root cause of this reason, and resolve it.

A few very important points to remember and follow whilst collecting –

  1. Always be polite and communicate effectively
  2. Be persuasive and persistent and do not be ‘put off’ easily
  3. Do not waste time – don let anybody waste your time – do it now
  4. Use targets and spreadsheets to focus your collection activity

Remember that payment is as important a part of your contract as the goods, services, sales, dispatch and pricing policy. If you provide the best service to your customer, you should expect payment in the same manor.

Set Your Plan of Action

Firstly, ensure you call at the right times of day. 9.30 – 12.00 and 2.00 – 4.00 are generally the best collection windows, avoiding lunch and early departures. Try to arrange your day around these periods.

You should set yourself regular cash goals to target and monitor your collection efforts.

Remember to use the 80/20 principle. This will bring the majority of the cash your business requires. Use days Sales Outstanding (Debtor Days) to set yourself (or your team) cash targets for the month ahead, and adopt rewards and incentives (however small) for your key achievers.

Place emphasis on any ’90 day overdue’ balances (including problematic debts) to ensure they don’t become uncollectible. Memories become very distant as time goes by and its your job to ensure an account is never outstanding for too long.

Recovery agents have collected debts aged 3 years and over just by picking up the phone and communicating. The offending company simply told them ‘nobody has ever asked for it before!’ although I do understand these instances are rare it is sometimes worth chancing your arm to see what happens.

Use your sales ledger system effectively to produce relevant reports necessary to assist your collections (i.e an aged debt report or detailed invoice analysis), and keep credit control history logs for all customers up to date, with detailed notes so you know exactly what was said in your last communication with them. This can then be recalled the next time you speak to them.

Send your paperwork out on time (i.e invoices, statements, and reminder letters) and ensure you are following up any queries or issues with accounts .

Reminder Letters for Invoices – Part 2

The second part of our series looks at the final stages of payment reminders.

3. Example of Deteriorating Payments Letter

To be sent when payments from a previously prompt-paying customer have started to deteriorate.

Dear

Amount overdue:
Invoice No:
Date:
Payment terms:
Credit limit:
Account:

You have in the past settled your account promptly but we notice that, in recent months, payments have been received outside the agreed terms and we wonder if there is any special reason for this. Continue reading