When controlling your receivables ledger, it helps to have an established policy. This lets both you and your customers know where they stand. The first step is to establish credit terms - net 14 or 30 days, for example, so that you know when collection action should commence. The two most commonly used methods are reminder letter and/or telephone collection.
Reminder letters must go out when the account becomes overdue; say at around 40 days for a 30 day account, to give the stragglers a chance to get their payments in. It is not worth having a series of reminders, as people will get to know the sequence and wait for the last one before taking action. Have one, and make sure it is specific and to the point.
Often letters have a sentence stating that you should ignore the letter if payment has already been made. Rather than doing that, ask people who have made payment to get in touch with the details immediately - after all, you do not want to give people the impression that it is okay to ignore your correspondence.
Telephone collection calls
Before you pick up the phone to make a telecollection call, there are a number of things you should do. It is essential that you prepare thoroughly, and that you are as prepared as possible for the kinds of excuses for non-payment that you might be faced with. Whilst it may not be possible to be prepared for every eventuality, by making sure that you are informed and aware, you should cope with the majority of situations.
Before you pick up the phone to make a call, there are some things you should know:
- How do things stand?: How much exactly does your customer owe? How old is the debt? Have any queries been raised? If so, have they been satisfactorily resolved?
- What has happened in the past?: How have they paid in the past? Have they always paid late, but you have just noticed the fact? Is their late payment this time a deviation from the norm? Is this an established customer?
- To whom do you need to speak?: You need the name of the person who can authorise payment. If necessary, make a separate call to be sure the information you have is correct.
- What do you want to achieve?: What will make it worth your while to pick up the phone? Set primary and secondary objectives. Your primary objective will generally be payment of the account, in full, immediately. Your secondary objective will depend on the circumstances, but may be payment of all but the current and/or any queried amount.
Making the call
When you are put through to your contact, you should...
- Introduce yourself by name, to make the contact personal. If you have made a connection with someone on a personal level, they will find it more difficult to lie or to shout at you.
- Listen actively, and let the customer know that you are listening. Remember to use listening noises, to repeat back information and to summarise the facts to confirm that you have listened and understood.
- Question effectively, to gain information and keep control. Open questions are fact finders; they begin 'who', 'what', 'where', 'why', 'when', and 'how'. Closed questions require yes/no answers only; they are helpful to focus attention on the facts and to control the conversation. A good opening question to use is, 'Is there any reason why this account cannot be paid in full today?' It requires a yes or no answer only; if the answer is yes, you can then go on to use an open question to get more information, if the answer is no, the customer has no reason not to agree to make payment. (If you opened with, for example, 'Why is it that you haven't paid?' then you are inviting an excuse - we need a copy invoice, this is in query, or whatever.)
- Use silence to bring pressure to bear. After someone has been asked a difficult question, they may need thinking time; alternatively, they could be on the hook. If you open with the suggested question, then it is essential that you remain silent afterwards and allow the customer time to reply. If you break the silence and ask, for example, 'Did you get the invoice?' then you are making the customers' excuses for them! Don't, give them a little thinking time and allow the silence to pressure them.
- Get a commitment to pay from the customer. After all, that's the entire point of the call. If you end without getting promise of payment by a particular date then you are guilty of the same error committed by the salesman who ends his sales interview without asking for the order.
Dealing with angry customers
The golden rule when dealing with customers who are angry, is don't take it personally - it's the circumstances they're angry with, or afraid of, not you. Let them get the anger out of their system and then use open questions to establish what the problem is. At all times you should avoid aggression; it never pays off, as it isn't the way to get people to do what you want. In addition, it will terrify your honest customers and make no impression whatsoever on habitual debtors. You must also beware of being forced into making threats that are risky to follow through into action.
Taking further action (legal action, for example) can be expensive and also costs you the customer. However, there are some habitual debtors who only ever pay on receipt of a court summons, and in such cases the appropriate action should be taken. Purchasing sanctions are often more effective when they are at the back of the customer's mind rather than being used. If sanctions are taken then the customer has an excuse to stop talking with you, and it is generally easy enough to open up a line of credit elsewhere. Beware of bluffing - once you have made a threat, you must either follow it through or else lose credibility in the eyes of the customer.
You should always keep full call detail records, which should include:
- the date and time of the call;
- who it was that you spoke to;
- the main points of the conversation; and,
- when you should receive payment.
It goes without saying that you should always do what you said you would do, when you said you would do it. If you said you would resolve a problem by Wednesday, then make sure you do; if you said you would ring after seven days if no cheque was received, then make sure that you make that call.