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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

Reminder Letters for Invoices – Part 1

Many companies are afraid in the current economic climate to chase their clients for money in fear they may lose them to a competitor. Please remember we are all working to make money and a good customer is a paying customer.

If you have issued an invoice and one of your clients has not paid this its your responsibility to call them to find out exactly what is going on. There maybe a genuine reason for them not paying you and it shows you are on the ball and will not be fobbed off with excuses when it comes to getting paid, even you’re biggest and best clients should understand if you chase them for overdue invoices and you should not be afraid to do this.

The first part of our series looks at the early stages of payment reminders. Continue reading

10 Excuses for Non Payment & How To Deal With Them

invoice

It’s a fact that you will encounter almost everyday in any form of Credit Control a number of customers who will try an excuse to buy some time and hold on to their cash.

A company has a legal obligation to meet its debts as they fall due. If they cannot they are technically trading whilst insolvent.

  1. The cheque is in the post – The oldest and worse excuse in the book! Ask them to send you a copy of the cheque if possible,  then ask them to confirm the date it was processed or sent, the exact amount and cheque number, what address the cheque was sent to and was it sent First Class. If the debtor is telling the truth they will generally be willing to accept and answer your questions. If they are not, the excuse will probably not be used again because of the professionalism and through nature of your questioning.
  2. We have not received your invoice or statement – This is a very common delaying tactic. Firstly have the debtor confirm the address that you have to send invoices to for that client to check it is correct. Have the debtor confirm to you that this is the only reason for withholding payment, then use a “closed” question like “If I email you a copy of the invoice or statement will this account be paid today?” If the debtor is not prepared to make an agreement once the invoices or statements are received then this is often a sign that the excuse is a simple delaying tactic and more probing questioning is needed.
  3. The debtor is never available – As Debt Collectors this is something we experience on a daily basis. Though it is unusual for a customer never to be there, its often used as an excuse and delay tactic. To counter this, ask to speak to an alternative decision maker within the business. Call at different times of the day, even before 9am and after 5pm, ask for mobile numbers for the debtor or directors of the company or escalate or complaint to higher management. If this doesn’t work fax and post a “Letter Before Action”, to the Director’s of the company giving them 7 days to pay, put a stop on the customers account if necessary until payment is received.
  4. The Accounts Department are only open 9am to 12pm one day a week – if it sounds implausible then it often is, look and think about the size of the company, are they large enough to warrant having an accounts department? Are they a really large organisation that would need a large accounts department, that would be open during normal office hours? Be prepared to challenge the situation and ask yourself of the importance of this person in the payment process. A company Director or partner in the business should be perfectly able to forward payment and tie up loose ends before the Accounts Department finally make an appearance in their office.
  5. The Goods were Damaged not received or arrived late – Your debtor may have a legitimate claim here, but not however if the delivery was over a few weeks ago, question why they have not contacted you to discuss and sort out the problem. Most deliveries can be tracked online so check and verify the information the debtor is supplying you with, whilst you are talking to them.  Ensure you investigate the nature of the debtors claim but request payment for the balance of the account. Act quickly to resolve any disputes so any invoices can be cleared as soon as possible.
  6. I am changing my bank account – Ask for proof of the situation and ask if the debtors new bank can call you to clarify the situation. Changing bank accounts is a very quick and easy process these days even for a business so this should not be holding up payment for a great amount of time a few days at the most. Point out to the debtor that their stance is unacceptable and that the costs of supporting the debtors non payment (I.E Interest Charges & Late Payment Fees) could be passed onto them if full and immediate settlement is not made. Push for payment either electronically or by way of a personal directors cheque.
  7. I’m too busy to pay you – If the debtor states this to you and if they genuinely are busy they then must be making plenty of money to pay your outstanding invoice. Use probing questions to ask how busy they are, when they are going to be paid and when you can expect your cash. Highlight to the debtor that in today’s modern environment everyone has access to online banking and it only takes a matter of seconds to process a payment to you. Press the debtor for immediate payment, if that cannot be accommodated arrange a date within the next day or so and follow this up with the debtor if you are not paid on the agreed date.
  8. I have not been paid by my clients yet – Debtors feel that they are entitled to withhold payment until such time as their clients make payment to them. Clearly this is not the case and a strong line needs to be taken. Ask the name and address of their debtor and the expected date of payment. Your immediate reaction maybe to feel sorry for the debtor, you need to remind them that you are now in a similar position due to their non payment, re confirm your payment terms and ask for payment immediately. As a company they have an obligation to pay on time. If the person you normally speak to with regards payment of accounts doesn’t seem bothered ask to speak to the manager or the director of the company to highlight the issues you have discussed
  9. I have a cashflow problem – The cash shortage is their problem, you have carried out work in good faith and expect to be paid for the work you have completed. Ask the debtor if they would be willing to pay by instalments or even post dated cheques given the severity of the situation. Be sure to monitor any instalment plan that can be agreed to ensure that the correct amount and date of the payments coming across is being adhered to, call the debtor and find out the situation if any instalment is defaulted on.
  10. The signatory is deceased – Not much you can do immediately with a case like this. There is often a good deal of paperwork to be completed prior to any funds being released from the deceased person’s estate. Verification of the deceased’s position however is essential. A sympathetic and polite approach is required, find out who is dealing with the deceased’s affairs, their contact details, and when they expect payment to be received. Always verify the details given, sometimes accounts can be opened in the deceased’s name by a fraudster to try and obtain goods.