Twenty Ideas for Becoming More Effective Collector


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Twenty Ideas for Becoming More Effective Collector

  1. 1. Twenty Ideas for Becoming More Effective Collector Starting Tomorrow Presented by Michael C. Dennis, M.B.A, C.B.F. For CMA Business Credit Services © 2005, Michael C. Dennis. All Rights Reserved
  2. 2. Disclaimer T he opinions presented in this program do not necessarily reflect the views of CMA Business Credit Services or its officers and directors. Participants are encouraged to evaluate any recommendations made or offered, and adopt only those concepts that make sense to them.
  3. 3. Manage Deductions More Efficiently <ul><li>Deductions typically account for less than 10% of A/R but take as much as 50% of collector’s time. </li></ul><ul><li>Why deduction problems are increasing </li></ul><ul><li>What you can and should do about it </li></ul><ul><li>Are write offs a legitimate deduction management tool? </li></ul><ul><li>Hidden costs associated with managing deductions </li></ul><ul><li>Documenting the deduction problem including root cause analysis </li></ul><ul><li>Tips for managing deductions more efficiently and more effectively </li></ul>
  4. 4. Develop Policies for Handling Distressed Debtors <ul><li>Make certain your debtor is distressed and not just leading on you </li></ul><ul><li>Be reluctant to accept the debtor’s first offer </li></ul><ul><li>Understand your bargaining power as a creditor </li></ul><ul><li>Try to determine if the debtor is bluffing </li></ul><ul><li>When to consider participating in an involuntary bankruptcy filing on the debtor </li></ul><ul><li>What to do if the debtor in question misses a payment or bounces a check. </li></ul>
  5. 5. Rely More On Your Subordinates <ul><li>Establish specific and challenging collection goals for each of your subordinates. </li></ul><ul><li>Develop departmental or team goals as well as individual goals. </li></ul><ul><li>Require everyone to perform their own self assessments. </li></ul><ul><li>Challenge individuals to explain why goals were not met and what changes they plan to make to address these problems. </li></ul><ul><li>Make sure there are rewards for meeting goals and disincentives for failing to achieve the desired results. </li></ul>
  6. 6. Develop Written Collection Policies <ul><li>That describe how soon initial contact should take place </li></ul><ul><li>That describe how often follow ups calls should occur </li></ul><ul><li>That describe who the collector should be speaking to </li></ul><ul><li>That indicate what questions should be asked </li></ul><ul><li>That indicate how the collector should handle a situation in which the customer does not return calls </li></ul><ul><li>That describes what types of proposals are acceptable. </li></ul><ul><li>That describes how to address unacceptable proposals. </li></ul><ul><li>That describes how to document a customer commitment. </li></ul>
  7. 7. Foster Teamwork <ul><li>Share a common vision and common goals. </li></ul><ul><li>Encourage an informal but businesslike work environment </li></ul><ul><li>Proactively manage conflict within the department </li></ul><ul><li>Measure, celebrate and reward productivity gains and exceptional performance. At the same time, avoid the temptation to sugar coat criticisms </li></ul><ul><li>Remember that too much oversight and supervision stifles creativity and innovation </li></ul><ul><li>Don’t feel threatened by hiring the best and brightest individuals you can find </li></ul>
  8. 8. Measure the Right Things <ul><li>DSO measures the average A/R turnover </li></ul><ul><li>DDSO measures what collectors can control to some extent – delinquencies </li></ul><ul><li>Remember that not every portfolio of accounts has similar characteristics – collectors should be challenging their own performance, not being compared to the performance of other collectors </li></ul><ul><li>Measure bad debt losses if and only if the collector was solely responsible for making credit decisions on the account. </li></ul>
  9. 9. Delegate More Effectively <ul><li>Assigning accounts for collection should not be done randomly. </li></ul><ul><li>Your best collectors should not be managing your largest customers unless it happens to be the case that your largest customers represent your biggest collection problems. </li></ul><ul><li>Your best collectors should be assigned to the customers that are the hardest to collect from. </li></ul><ul><li>The same idea applies to deduction management and to account reconciliation. </li></ul><ul><li>These should not be entry level positions. These should be reserved for employees with the experience and knowledge to do them well. </li></ul>
  10. 10. Avoid Common Collection Mistakes <ul><li>Think of each collection call as an opportunity to negotiate. </li></ul><ul><li>Never ask the customer when a payment is scheduled. </li></ul><ul><li>Don’t allow customers to intimidate you. </li></ul><ul><li>Always use the phone as your primary collection tool. </li></ul><ul><li>Use the two and up rule in debt collection. </li></ul><ul><li>Never accept a payment proposal without confirming that the same deal is being offered to other vendors. </li></ul><ul><li>Accept assistance from all quarters. </li></ul><ul><li>Avoid bad deals by using limited authority. </li></ul><ul><li>Don’t take credit hold off the table as a collection tool, but limit access to this tool. </li></ul>
  11. 11. More Common Mistakes to Avoid <ul><li>Leaving too many voice mail messages. </li></ul><ul><li>Becoming over reliant on written correspondence. </li></ul><ul><li>Avoiding confrontations. </li></ul><ul><li>Using salespeople as collectors without establishing ground rules. </li></ul><ul><li>Negotiating with note takers rather than decision makers </li></ul><ul><li>Talking when you should be listening, or not asking open ended questions. </li></ul><ul><li>Allowing customers to equivocate: For example, the term “That invoice should be paid on Friday” is not a commitment for payment. </li></ul>
  12. 12. Ways to Accelerate Cash Inflows <ul><li>Follow up promptly on past due balances. Eliminate the idea of grace periods. </li></ul><ul><li>Take time to confirm payment commitments in writing if a customer has a history of breaking commitments. </li></ul><ul><li>Find a way to track payments against commitments. </li></ul><ul><li>If a customer breaks a payment promise, require that the check they issue be sent by overnight delivery. </li></ul><ul><li>If customers request supporting documentation, fax it even if it is voluminous. </li></ul><ul><li>Make sure there are rewards for superior performance among collectors and consequences for substandard performance. </li></ul>
  13. 13. Help Collectors to Prioritize <ul><li>If you do not prioritize, chances are good that urgent tasks will be completed before important tasks are done. </li></ul><ul><li>Failing to prioritize is inefficient. </li></ul><ul><li>Collections should be done systematically with larger dollar and higher risk accounts called before smaller dollar and low risk accounts. </li></ul><ul><li>Unfortunately, many collectors work sequentially – starting at A and ending at Z. </li></ul><ul><li>A simple report such as an aging listing past due balances in declining dollar value can provide almost instant visibility to problems, and instant improvement in collections. </li></ul>
  14. 14. Eliminate Reasons for Payment Delays <ul><li>Recognize that the ability of other departments to make mistakes that delay payments greatly exceeds the credit department's ability to resolve these problems. </li></ul><ul><li>Remember that statistically customers are right more than 50% of the time when they take deductions. </li></ul><ul><li>Acknowledging that internal problems exist, the next step is to systematically address and resolve the problems resulting in short payments and payment holds. </li></ul><ul><li>If you want management’s support, you have to show them what mistakes cost. </li></ul><ul><li>Remember there are direct and indirect [a.k.a. opportunity costs] associated with errors made by the seller. </li></ul>
  15. 15. Use One or More Lockboxes <ul><li>Lockboxes accelerate cash inflows by reducing both mail float and processing float. </li></ul><ul><li>Many customers recognize that they will lose float if they remit to a lockbox address. </li></ul><ul><li>Thus, the key is getting customers to use your lockbox. </li></ul><ul><li>Doing so requires tracking which customers are not remitting payment to the correct address. </li></ul><ul><li>There should be a progressively more strident program to encourage customers to correct the remittance address in their accounts payable systems. </li></ul>
  16. 16. Consider Collection Automation <ul><li>There are many types of software available including collection management software (CMS). </li></ul><ul><li>CMS controls and directs your team’s collection efforts. </li></ul><ul><li>CMS will systematize the collection process. </li></ul><ul><li>CMS prioritizes collection calls daily for each collector. </li></ul><ul><li>CMS software is usually capable of generating dunning notices with a minimum of data entry. </li></ul><ul><li>CMS also may be able to fax or email directly from the collector’s computer screen. </li></ul><ul><li>With CMS, the credit manager can monitor individual collection efforts more easily, and can establish aggressive collection targets. </li></ul>
  17. 17. More Collection Tools <ul><li>When a payment commitment is broken, first ask your customer why you were not notified. </li></ul><ul><li>If you have the personal guaranty of a third party, notify them before you place an account for collection. </li></ul><ul><li>Try not to make the first concession during a negotiation with the debtor. </li></ul><ul><li>Do not keep credit holds a secret. Instead, try to give customers advanced warning of possible adverse action. </li></ul><ul><li>If you get a security interest, perfect it. </li></ul><ul><li>If you have mechanics lien rights, file the preliminary notices as required or the lien as required by state law. </li></ul>
  18. 18. More Collection Tools <ul><li>Learn to walk away from bad deals. </li></ul><ul><li>Limit the number of people authorized to negotiate and make concessions with customers. </li></ul><ul><li>Periodically review all balances over 90 days with each collector, and let them know that you expect a detailed answer about the status of every account with a balance over 90 days. </li></ul><ul><li>Watch for changes in payment patterns. </li></ul><ul><li>Do not try to argue the merits of your credit decisions with customers or with your salespeople. </li></ul><ul><li>Consider giving customers the benefit of the doubt when they claim to have a legitimate dispute, but insist they pay any undisputed amount. </li></ul>
  19. 19. More Ways to Improve Every Collection Call <ul><li>Ask when the check was mailed, not when payment is scheduled. </li></ul><ul><li>Ask yourself: Is this a customer, or a debtor. Treat debtors differently than customers. </li></ul><ul><li>Use a two to one rule. Listen twice as much as you talk. </li></ul><ul><li>When an account is seriously delinquent and is offering no commitments, ask if they are planning a bankruptcy filing. Sometimes the shock of the question will result in a more open dialogue. </li></ul><ul><li>Offer cash discounts as an incentive for early payment. </li></ul><ul><li>Charge late fee interest as a disincentive for customers to delay payment. </li></ul>
  20. 20. More Ways to Improve Every Collection Call <ul><li>State exactly what you want, need and expect. </li></ul><ul><li>If necessary, meet face to face with customers to address and resolve serious problems. </li></ul><ul><li>Enforce your cash discount policy. </li></ul><ul><li>Shorten your terms of sale to marginal accounts. </li></ul><ul><li>Require a specific commitment, not a best guess. </li></ul><ul><li>If the customer cannot pay in full, ask for 50 percent down as a good faith payment. </li></ul><ul><li>When a customer is seriously past due, ask them to confirm their commitment to you in writing rather than the other way around. </li></ul>
  21. 21. More Ways to Improve Every Collection Call <ul><li>Establish specific goals for each collection call. </li></ul><ul><li>If a debtor offers an ultimatum, tell them you will need time to consider it. </li></ul><ul><li>When a customer makes an offer, make a counter offer. If the debtor even starts to negotiate, you know their position is flexible. </li></ul><ul><li>Understand that A/P managers often receive bonuses based on how long they can delay payment. </li></ul><ul><li>Focus on the customer and the problem at hand. Don’t try to multi task. </li></ul><ul><li>Always ask about the status of the entire past due balance…don’t impose arbitrary cutoffs. </li></ul>
  22. 22. More Ways to Improve Every Collection Call <ul><li>Become progressively more assertive with each collection call you make. </li></ul><ul><li>C all as soon as possible once invoices become past due. </li></ul><ul><li>Call as often as necessary to get a commitment for payment. </li></ul><ul><li>Ask to speak to a specific person rather than to a department. </li></ul><ul><li>Don’t accept the idea that a customer can force you to agree to continue to extend credit to them as a condition for paying their past due balance. </li></ul><ul><li>Assume your customer needs your company’s products as much as you need their business. </li></ul>
  23. 23. Free White Papers <ul><li>Essays on the following subjects are available to attendees free of charge: </li></ul><ul><ul><li>Credit Insurance </li></ul></ul><ul><ul><li>Financial Ratios for the Credit Function </li></ul></ul><ul><ul><li>Export Credit Management </li></ul></ul><ul><ul><li>How to Handle and Dispute Bankruptcy Preferences </li></ul></ul><ul><ul><li>How to Measure Credit Department Performance </li></ul></ul><ul><li>To request any or all of these papers, please contact me by email at: </li></ul>