Telephone Collection Techniques

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Covers methods and ways to effectively collect through telephone calls.

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Telephone Collection Techniques

  1. 1. TELEPHONE COLLECTION TECHNIQUES Brenda Terreault, Esq. NACM Oregon January 28, 2010
  2. 2. A/R – Delinquency <ul><li>When the customer fails to pay the invoice when due. </li></ul><ul><ul><li>Delinquency in payment is considered a default; but not all defaults are delinquencies </li></ul></ul><ul><li>Customer then is subject to collection actions, up to and including litigation. </li></ul>
  3. 3. Goals of the Collections Effort <ul><li>Get the money! </li></ul><ul><li>Retain and enhance Company goodwill. </li></ul><ul><li>Educate and rehabilitate the Debtor. </li></ul><ul><li>Do so economically! </li></ul>
  4. 4. A/R – Collections <ul><li>Four standard guidelines to making first party collection efforts successful: </li></ul><ul><li>Require clarity within the Company about who’s responsible. </li></ul><ul><li>Have a regular, formalized, written, and systematic collection program. </li></ul><ul><li>Use a collection activity record. </li></ul><ul><li>Know your customer. </li></ul>
  5. 5. Classifying the Debtor <ul><li>Willing and able to pay: [has character and capacity] </li></ul><ul><li>Honestly overlooked </li></ul><ul><li>Procrastinator or careless </li></ul><ul><li>Grievance or dispute </li></ul><ul><li>Willing, but unable to pay everyone: </li></ul><ul><li>Poor budgeter </li></ul><ul><li>Staller </li></ul><ul><li>Temporary problem </li></ul><ul><li>Unwilling and unable to pay: </li></ul><ul><li>Eventual insolvent </li></ul><ul><li>Hardship case </li></ul><ul><li>Credit Criminal </li></ul>
  6. 6. A General Collection Program <ul><li>A series of stages, </li></ul><ul><ul><li>each successively more firm and demanding of payment, </li></ul></ul><ul><ul><li>each addressing more specific types of debtors, </li></ul></ul><ul><ul><li>each utilizing specific methods or tools. </li></ul></ul>
  7. 7. A General Collection Program <ul><li>1 st Stage – “Impersonal Routine” </li></ul><ul><ul><li>Purpose: To remind </li></ul></ul><ul><ul><li>Target: Directed to debtor Company A/P </li></ul></ul><ul><ul><li>Method: Usually a computer notice, sometimes a courtesy call </li></ul></ul>
  8. 8. A General Collection Program <ul><li>2 nd Stage – Personalized Appeals </li></ul><ul><ul><li>Purpose: Appeal for immediate payment </li></ul></ul><ul><ul><li>Target: An individual with authority to pay </li></ul></ul><ul><ul><li>Method: Usually, a telephone call, sometimes a courtesy visit </li></ul></ul>
  9. 9. A General Collection Program <ul><li>3 rd Stage – Drastic or Legal </li></ul><ul><ul><li>Purpose: Demand immediate payment </li></ul></ul><ul><ul><li>Target: An individual with authority to pay </li></ul></ul><ul><ul><li>Method: Usually, a telephone call </li></ul></ul><ul><ul><li>Sometimes a final demand letter </li></ul></ul>
  10. 10. Handling Disputes <ul><li>We identified above many potential problems in A/R that end up as credit issues. </li></ul><ul><li>Dispute resolution system must: </li></ul><ul><ul><li>Define problem in terms leading to a solution. </li></ul></ul><ul><ul><li>Propose a solution. </li></ul></ul><ul><ul><li>Assign responsibility for solution. </li></ul></ul><ul><ul><li>Assign responsibility for follow-up </li></ul></ul><ul><ul><li>Assign target date for closure. </li></ul></ul><ul><ul><li>Alert management when necessary. </li></ul></ul>
  11. 11. Handling Disputes <ul><li>Responsibilities of Credit Department are: </li></ul><ul><ul><li>Gather the facts. </li></ul></ul><ul><ul><li>Determine legitimacy. </li></ul></ul><ul><ul><li>Get customer to define issue in resolvable terms. </li></ul></ul><ul><ul><li>Try to get to a solution with the customer. </li></ul></ul><ul><ul><li>Get commitment to pay the undisputed portion. </li></ul></ul><ul><ul><li>Report the dispute to the appropriate party for resolution. </li></ul></ul><ul><ul><li>Follow-up to assure resolution and closure. </li></ul></ul><ul><ul><li>Report to management as appropriate. </li></ul></ul>
  12. 12. Telephone Collections <ul><li>Preparation: </li></ul><ul><ul><li>Review the credit file. </li></ul></ul><ul><ul><li>Know the current situation. </li></ul></ul><ul><ul><li>Anticipate the Debtor type. </li></ul></ul><ul><ul><li>Put a positive thought in your head. </li></ul></ul>
  13. 13. Telephone Collections (cont.) <ul><li>Skills that help: </li></ul><ul><li>Listening – Really understanding what a debtor may be saying. </li></ul><ul><li>Speaking – Using your voice to give “tone” to what you are communicating. </li></ul><ul><li>Negotiating – Understanding negotiation, so that you control the process and solution. </li></ul>
  14. 14. Telephone Collections (cont.) <ul><li>The collection call: </li></ul><ul><li>Identify the debtor, the representative, and yourself. </li></ul><ul><li>State your purpose. </li></ul><ul><li>Use the psychological pause. </li></ul><ul><li>Determine the issue, the solution, and overcome any objections to payment. </li></ul><ul><li>Get a commitment. </li></ul><ul><li>Close. </li></ul>
  15. 15. Using Your Voice – Inflection <ul><li>“ I didn’t tell John you were stupid.” [Someone else told him.] </li></ul><ul><li>   </li></ul><ul><li>“ I didn’t tell John you were stupid.” [I’m keeping the fact a secret.] </li></ul><ul><li>   </li></ul><ul><li>“ I didn’t tell John you were stupid.” [I only hinted at it. Or I wrote it </li></ul><ul><li>on the bathroom wall.] </li></ul><ul><li>   </li></ul><ul><li>“ I didn’t tell John you were stupid.” [I told everyone but John.] </li></ul><ul><li>   </li></ul><ul><li>“ I didn’t tell John you were stupid.” [I said that someone here is stupid. </li></ul><ul><li>John figured out all by himself.] </li></ul><ul><li> “ I didn’t tell John you were stupid.” [I told him you are stupid.] </li></ul><ul><li>   </li></ul><ul><li>“ I didn’t tell John you are stupid .” [I merely voiced my conviction that you aren’t very bright.] </li></ul><ul><li>   </li></ul><ul><li>*Edited by Rod Wheeland, from Leola G. Miller, CCE, October 1990. </li></ul>
  16. 16. Telephone Collections (cont.) <ul><li>Dealing with . . . . </li></ul><ul><li>Delinquency – Reminder of expectations. </li></ul><ul><li>Repeated disputes – Identify source of issue; communicate candidly with debtor. </li></ul><ul><li>Unearned cash discounts – Candid discussion with debtor. </li></ul><ul><li>Repeated promises to pay – ACH transfer; place account on credit hold. </li></ul><ul><li>Bad check(s) – ACH transfer; CWO terms. </li></ul>
  17. 17. Telephone Collections (cont.) <ul><li>Cleanup: </li></ul><ul><ul><li>You must record salient comments and commitment in collection file. </li></ul></ul><ul><ul><li>Set follow-up tickler for any commitments you make. </li></ul></ul><ul><ul><li>Set follow-up tickler for any commitments the Debtor makes. </li></ul></ul>
  18. 18. The Distressed Debtor <ul><li>The customer that cannot meet obligations as they mature. </li></ul>
  19. 19. The Distressed Debtor (cont.) <ul><li>Symptoms of distress in debtor business and operations: </li></ul><ul><li>General disorganization in business. </li></ul><ul><li>Personnel layoffs. </li></ul><ul><li>Key employee turnover. </li></ul><ul><li>Change in banks. </li></ul><ul><li>Increased requests for credit references. </li></ul><ul><li>Visible decreases in inventory levels. </li></ul><ul><li>Rumors in industry that business is in trouble. </li></ul><ul><li>Owner with domestic problems. </li></ul><ul><li>Business for sale. </li></ul><ul><li>Business recently sold. </li></ul>
  20. 20. The Distressed Debtor (cont.) <ul><li>Workout for the temporary problem: </li></ul><ul><ul><li>An extension agreement </li></ul></ul><ul><ul><li>A composition settlement </li></ul></ul><ul><li>As memorialized with: </li></ul><ul><ul><li>A letter of understanding </li></ul></ul><ul><ul><li>A promissory note </li></ul></ul><ul><ul><li>A security agreement </li></ul></ul>
  21. 21. The Distressed Debtor (cont.) <ul><li>Workout for the chronic problem: </li></ul><ul><ul><li>Shortening terms </li></ul></ul><ul><ul><li>Order to order </li></ul></ul><ul><ul><li>Cash terms </li></ul></ul>
  22. 22. The Distressed Debtor (cont.) <ul><li>Conclusions: </li></ul><ul><ul><li>Crucial to know when the debtor is truly distressed. </li></ul></ul><ul><ul><li>Closely monitor activity, keep good records. </li></ul></ul><ul><ul><li>Agreements should be properly documented and enforced. </li></ul></ul><ul><ul><li>Prompt and decisive end game. </li></ul></ul><ul><ul><li>Know when to get help. </li></ul></ul>
  23. 23. Working with Third Parties <ul><li>Collection Agencies </li></ul><ul><li>When to assign: When you’ve completed your regular collection process and need to escalate to gain payment. </li></ul><ul><li>Strengths </li></ul><ul><ul><ul><li>Understanding of collection process, especially legal recourse </li></ul></ul></ul><ul><ul><ul><li>Communication skills </li></ul></ul></ul><ul><ul><ul><li>Negotiating skills </li></ul></ul></ul><ul><ul><li>Weaknesses </li></ul></ul><ul><ul><ul><li>Inconsistent performance </li></ul></ul></ul><ul><ul><ul><li>No legal authority </li></ul></ul></ul><ul><ul><ul><li>Tendency to “cream” </li></ul></ul></ul>
  24. 24. Working with Third Parties <ul><li>Attorneys </li></ul><ul><li>When to use: When the balance due is of sufficient size to assure interest. </li></ul><ul><li>Strengths </li></ul><ul><ul><ul><li>Understanding of legal rights and responsibilities </li></ul></ul></ul><ul><ul><ul><li>Ability to use legal system to gain judgment </li></ul></ul></ul><ul><ul><li>Weaknesses </li></ul></ul><ul><ul><ul><li>Tendency to “cream” </li></ul></ul></ul><ul><ul><ul><li>Inconsistent performance </li></ul></ul></ul><ul><ul><ul><li>Cost </li></ul></ul></ul>
  25. 25. Small Claims Court? <ul><li>Issues: </li></ul><ul><ul><li>Limitation of claim ($7,500 in Oregon, $5,000 in Washington) </li></ul></ul><ul><ul><li>Documentation/proof </li></ul></ul><ul><ul><li>Your time for appearance </li></ul></ul><ul><ul><li>Court fees </li></ul></ul>
  26. 26. The End Game <ul><li>Often leads to: </li></ul><ul><ul><li>Bankruptcy </li></ul></ul><ul><ul><li>The out of court workout or liquidation (assignment for the benefit of creditors). </li></ul></ul>
  27. 27. Bankruptcy <ul><li>Two-fold purpose: </li></ul><ul><ul><li>A debtor’s remedy – The debtor is relieved from the burden of past debts. </li></ul></ul><ul><ul><li>A creditors’ remedy – The assets of the estate are liquidated and the proceeds are distributed to creditors. </li></ul></ul>
  28. 28. Bankruptcy <ul><li>Three general types affecting the trade creditor: </li></ul><ul><ul><li>Chapter 7 – Liquidation </li></ul></ul><ul><ul><li>Chapter 11 – Reorganization </li></ul></ul><ul><ul><li>Chapter 13 - Debtor individual with regular income </li></ul></ul>
  29. 29. Bankruptcy <ul><li>Allowable claims: </li></ul><ul><ul><li>Administrative claims </li></ul></ul><ul><ul><li>Taxes </li></ul></ul><ul><ul><li>Wage claims and employee benefits </li></ul></ul><ul><ul><li>Post-petition, pre-trustee </li></ul></ul><ul><ul><li>Secured creditors to amount of security </li></ul></ul><ul><ul><li>Unsecured creditors </li></ul></ul>
  30. 30. Bankruptcy <ul><li>Strengths </li></ul><ul><ul><li>Forces all creditors to go along </li></ul></ul><ul><ul><li>Emphasis on fair and equitable treatment </li></ul></ul><ul><li>Weaknesses </li></ul><ul><ul><li>Process </li></ul></ul><ul><ul><li>Lack of flexibility </li></ul></ul><ul><ul><li>Expense </li></ul></ul>
  31. 31. Bankruptcy <ul><li>For the trade creditor, several issues: </li></ul><ul><ul><li>Notice </li></ul></ul><ul><ul><li>Filing proof of claim </li></ul></ul><ul><ul><li>Reclamation rights – See “Reclamation Manual” </li></ul></ul><ul><ul><li>Preferences </li></ul></ul><ul><ul><li>Selling to the bankrupt debtor </li></ul></ul><ul><ul><li>Service on a Creditors’ Committee – See Manual </li></ul></ul><ul><li>See “Maximizing Recovery in Bankruptcy” </li></ul>
  32. 32. Out of Court <ul><li>With a cooperative debtor and united creditors it is possible to conduct a liquidation and sharing of the proceeds out of court. </li></ul><ul><li>BK has gotten very expensive and more and more lawyers are heading this direction. </li></ul><ul><li>Usually involves an assignment of assets for the benefit of creditors; the assignee liquidates the assets; the assignee distributes the proceeds to creditors on a pro rata basis. </li></ul><ul><li>See “General Assignments for the Benefit of Creditors” </li></ul>
  33. 33. <ul><li>Fair Debt Collection Practices Act </li></ul>
  34. 34. Myth #1 FDCPA only applies to 3 rd Party Collectors
  35. 35. Myth #2 FDCPA only applies to Consumer accounts
  36. 36. Thank you! Questions? [email_address]

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