It has long been a misunderstanding that the perfect collection team is comprised of cut-throat employees that will resolve the conflict and obtain maximum compensation at all cost. While the primary goal of collecting is to ensure that you secure all of the money owed, the “hardball” approach often inhibits achieving this desired result. Listed below are some recommendations on what to focus on when constructing the ideal collection team for your business. 

Toughness is Not the Ideal Characteristic of a Collection Agent

It is important for your collection team to be comprised of individuals who have a backbone. They need to be willing to put their foot down and communicate the seriousness of collection notices and let the customer explicitly understand what is expected of them according to a prior agreement. With that being said, being too overbearing may result in more issues with regards to collecting payment. Someone who is not compassionate to a degree may run the risk of jeopardizing the chance to continue doing business with this customer in the future. An individual who communicates with reason and shows interest in retaining a customer will help reduce the chance of customers finding new suppliers.  

Focus on Different Qualities when Assembling the Right Team

Find someone who is a problem solver. A collection agent is going to be far more successful in obtaining compensation when they are able to reason through complex issues. Someone who is capable of understanding the reason for late payment and developing a plan to work with the customer is more likely to keep your company happy, doing so by getting the payment conflict resolved and retaining the customer for future business!

Another sought after trait of a successful collection agent is someone who is friendly. As simple as this sounds, the ability to maintain friendly and professional relations with customers even in awkward situations will lend to higher rates of success.

Organization is another facet of a successful collection team. Understanding the importance of keeping up with appointments, dates of collection notices, and general paperwork will help avoid additional issues when problems inevitably arise. 

An often overlooked trait of a successful collection team is one that is aligned with company goals. While collection teams may often seem to operate as a separate entity than the core company, it is important that the team understands that maintaining the company culture and objectives is a huge deal. When all motives are aligned correctly, the overall efficiency and productivity of the company will improve dramatically. Having too cut-throat of a collection team may send the message to customers that the whole company operates like that and will reduce the likelihood of retaining customers. 

These suggestions serve as a foundation to building the perfect collection team for your company. While the needs differ from company to company when it comes to building a successful collection team, these recommendations will act as building blocks in getting your team structured the right way. The main takeaway of these recommendations is to shift your understanding that the outdated idea of having a hard nosed collection agent is actually counterproductive for generating the desired results.

The standard convention for credit terms has always been net-30. It provides your customers with enough time to pay but also allows you to receive payment within a reasonable amount of time. It seems to be the best option for all parties. Or is it? Though it is true that most businesses operate on net-30 credit terms, there is nothing special about it that makes it the best option for every situation.

Figure out what works for you

Many companies feel the need to stick to the industry “standard”, but no two business are built the exact same way. For some, Net-25 may make more sense or even Net-15. For others, it may make more sense to offer longer credit terms. It will all come down to the specific needs of your company and your customers. Some customers may bill their own customers on longer credit cycles and thus require you to match this in order to ensure they will always be able to pay. At the end of the day, there is no harm in experimenting and seeing what works best for you.

Encouragement to Pay Faster

By forcing your customers to operate on a quicker payment cycle, you can create a sense of urgency that puts payments to your business above others. By shortening their credit cycle, they know you mean business and are less likely to tolerate late payments compared to other businesses they may owe money to.

Be Alert to problems Sooner

When you operate on Net-30 terms, it takes you a minimum 30 days to find out that there might be a problem with your customer paying. You then have to send a reminder, potentially call, and go through your own collection process. This will take time and for every day after the initial sale, collecting the money becomes harder and harder. If you were to switch to shorter terms, you can find these problems out sooner and potentially get them resolved easier. 

Obviously, there are also drawbacks to switching up your credit terms. Some customers may be resistant to any change they see as possibly negatively impacting their business. You may also find that net-30 works best for your business. The point is not that net-30 is bad, the point is that challenging the status quo is how you improve your business. Let us know what your opinion is. Do you operate on net-30 terms or do you mix it up?

As we have written in the past, sometimes making risky credit decisions can be beneficial to your business. In certain situations, especially when a physical product is involved, these riskier credit decisions can use an added bit of certainty. While a lien can take many forms, the idea is that it gives your business a right to the property belonging to another company until a debt owed by that company is discharged. Meaning, if the company fails to pay you for the product, you can reclaim it or other assets used as collateral to recover your loss. While this can be a useful strategy for hedging your risk, it does come with its own problems.

What Types of Business Does This Make Sense For?

In its most basic form, a lien means that you have a security interest to the product that you are selling to that company on credit until they have paid you in full for the product. This is the simplest form of a lien, and basically just guarantees your right to your product should your customer go bankrupt or fail to pay. For these cases, it really only makes sense to use this if you sell a physical product that can be recovered in this circumstance.

There are other types of liens that involve your customer offering other types of assets as collateral, instead of the product you are selling itself. While this accomplishes the same thing, it is typically harder to arrange and get a customer to agree to. It also can create more headaches for you in the event you then have to figure out how to deal with that asset.

When Should You request the use of lien?

This can be tricky as not all customers will want to give up that type of power. In an ideal world, you would have this agreement with all of your customers. Realistically, this is something that you should request in two cases. You should request this when an existing customer begins to fall behind on their payments and pay slower but is still making consistent payments. In this case, they are clearly having cash flow problems but can still afford their payments in time. A lien on the product you sell them would give you the extra piece of mind knowing you can recover most of your assets should things get worse.

The second case where a lien makes sense if a new customer requests a large amount of upfront inventory. Obviously, the customer’s other financials should also add up and make sense, but having a lien on the product can help make up for the lack of trust and history between you and this company.

Liens are complicated and come in all different forms. If you are considering using a lien we recommend you contact a lawyer in your state to make sure you do it correctly. Used correctly though, a simple lien on assets sold on credit can add another safeguard to your credit process and can be used as another tool in your credit tool belt.

Even with the best credit and collection practices, some of your cases may still end up in court. It is a tedious and time-consuming process, but it is sometimes your best course of action both as a deterrent to other customers and in the hopes of getting some of your money back.

Summons and Complaint

Once you decide to file a suit, you will then provide your attorney with all the required advancements and documentation needed. This will mainly include the amount due, as well as lay out the basis of your case. After this, a process server or local sheriff will serve your customer with the official Summons and Complaint. Once your customer has been served, they will have anywhere from 20-45 days to file a response depending on the state.

Three Possible Outcomes

Once the summons has been served, three possible scenarios could happen. In the first, your customer fails to respond within the time frame that they are allowed. In this case, your attorney will attempt to file a motion for a default judgement. Given that your customer did not provide any evidence to the contrary or bother to respond, the court will rule in your favor and give your customer 2-3 weeks to dispute the judgement. If not response is received by that point then they will have to abide by whatever verdict the judge decided.

The second type of scenario would be if your customer responds with a general denial of the claim but without disputing any of the facts. In this case, your attorney will most likely enter a motion for a summary judgment. This means that the court will decide the case based on the evidence presented in the documents submitted to the court. Assuming the documents you submitted showed a good amount of evidence in your favor, the court will likely rule in your favor given that your customer failed to dispute your claim or show any evidence to the contrary.

The most complicated scenario would be if your customer disputes your claims and provides evidence to support their case. In this case, the case would most likely move to a trail. 

Going To Trial

We will not go too in-depth into how a trial works, as this will be handled largely by your attorney, but if a trial is necessary you should know a few things. For starters, it is possible that a judgment could be rendered that not only dismisses your claim but also holds you responsible for legal cost or other damages. In the case that your claim is found to be valid and a judgment is rendered in your favor, you should not expect to be paid that very second. Getting your customer to pay, even with a legal ruling, can take time and does not always guarantee payment. If your customer doesn’t pay within a specified time (usually 20-30 days), you may proceed with a Writ of Execution. This allows a local sheriff to arrange payment of the judgment by assessing the debtor’s assets and determine if it would be possible to collect the money owed. Once the sheriff has finished their assessment (usually up to 90 days), you then have the right to subpoena the principal owner of your customer’s company in order to question him a supplementary proceeding called a judgment debtor exam. This will allow you to attempt to find any assets that the sheriff was unable to uncover. Once this occurs, you will be able to attempt to use these assets to pay the amount owed to you as deemed by the judge. 

It is important to note that these timelines can vary by states but the overall structure should remain the same. As always, this post is not intended to serve as legal advice and if you have any specific questions we would suggest you seek the advice of an attorney.

Improving your credit and collection process is rarely a glamorous or fun job, but is still one of the most important things you can do to improve your bottom line. A robust and well tested credit policy and collection procedure can both minimize bad debt and help you collect more of what slips through the cracks. In order to help you minimize the time you spend on this endeavor, here are five things to avoid in any credit and collection process. 

Not Striking a Fine Balance Between Rules and Flexibility

As much as we think we can come up with a plan for every scenario, there will inevitably be a time where a customer does not fall into any of the situations you prepared for. If your credit and collection professionals are simply used to following a strict set of rules, they will not only be lost in this scenario but they will also never improve on the original system. Maybe something that you designed in theory does not work in the field. It is important that your employees follow guidelines, but are able to work with some reasonable amount of flexibility to adapt and improve. 

Outsourcing your problems too early 

While there are certainly times to outsource your collection process, developing an robust in-house collection process is important in collecting as much money as possible. For starters, if you outsource accounts that could have easily been collected with a simply email or letter, you are giving up a percentage of the amount received for no reason. Secondly, the key to any collection is starting early. If you are able to start the process sooner, there is a greater likelihood that either you or an outside agency will be able to collect the debt in the long run. 

Getting Stuck in Your Ways

Technology is advancing at a rate never before seen in history. There are countless new enterprise and consumer software platforms being released each year. While we are not recommending you try each one, we do recommend that you keep an open mind to new technologies that could help your business. Just because it is working for your company now, it does not mean it is the best option or will continue working in the future. 

Credit and Collections have never been and will never be one-size fits all. The needs of your business are unique and thus your credit and collection process should be as well, but avoiding these pitfalls will allow you to minimize the mistakes you make while trying to find the system that works best for you.

Understanding how to read a cash flow statement is an essential part of doing business. Here is a quick step by step guide to help you with the basics and understand what you are looking for.

Start With The Basics

The most important question you need to answer is whether this business is cash flow positive or not. You should look for the line titled “Net increase (or decrease) in cash and cash equivalents”. This is normally found near the bottom of the report. This line will tell you whether the company was cash flow positive or negative over the given period.

Understand What The Numbers Mean

Just because a company is cash flow negative does not mean it is in bad shape. You should look at past reports to see if this is a one-time event or a consistent problem. If the company recently made an acquisition, purchased large assets or made investments in growth they may experience a period of negative cash flow. This does not signal a problem and can, in fact, be the sign of a growing business.

Long-Term Problem?

If a company does have a consistent streak of negative cash flow statements, you should ask yourself two questions. What is the size of the deficit and can the difference be settled through cash on hand, bank borrowing or selling off assets. Most new companies, especially in industries with a high barrier of entry, will experience negative cash flow in the beginning as they require a larger customer base to become profitable. If you believe the business is destined to grow, this could potentially lead to positive cash flow in the future.

What is your Goal

At the end of the day, how you interpret a cash flow statement depends on what you are looking for. If you are looking for an established company with consistent revenue and expenses, you should be more turned off by any signs of negative cash flow. On the other hand, If you are used to working with new or riskier companies than your tolerance for negative cash flow should adjust accordingly.
The most important thing to take away is that negative or positive cash flow is not in and of itself a good or bad thing. Why a certain company is cash flow positive or negative is far more important. A string of large orders that drive up cash flow one month does not always mean the business is healthy long term. Conversely, a large purchase that leads to negative cash flow does not mean the business is going to be insolvent. Context is everything.

No matter how well run your credit department is, customers will always find a way to not pay on time. It is an unfortunate, yet inevitable, part of extending credit. Switching credit terms and constantly evaluating your customers can help minimize this, but at the end of the day, you will still have customers to deal with.

Create Your List

Many customers love to give countless excuses for not paying. We have listed out some of the most popular reasons that a customer will give for not paying on time. We suggest making a list like this of your own with some of ours and possibly others that you have heard over the years. Whenever you encounter a late paying customer, use this list to help you find out why you are not being paid. Start by crossing out any reason that you know could not possibly be true until you are left with only a few possibilities. From there, it is a matter of talking to your customer and doing some research to figure out the real reason your customer is late paying their bill. It is important to never let the customer control the conversation with their excuses. By doing this, you will always be one step ahead and make it harder for them to lie their way into a better deal.

Popular Reasons For Late Payment

• The quality of the goods/service that you gave them was below the agreed upon standard
• They have been having late payment issues of their own
• They simply do not have the money on hand. (never believe this, most businesses will have the money to cover at least some of their debts. Make sure yours is the most important)
• They want to make you wait in order to get you to agree to a better deal somewhere down the line.
• You never asked/reminded them a payment is due. Never assume that someone is going to pay you just because you send them an invoice. A friendly, yet stern, a reminder can go a long way.
• This customer just has a habit of paying late.
• They believe they have already paid you what they owe you. This is normally easy to disprove (check numbers, bank statements, etc.) but sometimes customers will use this as a tactic to argue that agreed upon price is too high.
• Random excuses that will vary from customer to customer. They may say a key member of the team was on vacation or sick for an extended period of time or that a large capital purchase tied up their liquid assets for a period. Some of these may be very legitimate, but others are just all smoke and mirrors. Normally, if you press them on the topic the lies will fall apart rather quickly.

The key to getting paid is to always have control of the dialogue between you and your customer. If you can go into a conversation with a good idea as to why your customer is late on a payment, you will be able to see through their excuses and get paid sooner.

Making a sale is a great feeling, but if it is on unfavorable or unsustainable credit terms it will ultimately cost you time and money in the long run. We too often hear stories of sales pushing for extending a risky amount of credit. Taking risk has its place in the credit process, but these should be informed risks that take both negative and positive outcomes into account. This is why we recommend that all salespeople have at least some understanding of the credit and collection process.

Communication is key to minimizing disagreements

Most of these disagreements stem from a lack of understanding or appreciation for one another ’s job. Sales should point out all the reasons the account is worth taking the risk but also appreciate the knowledge and experience the credit department has had with
similar risks.

Getting caught up in making the next sale

This is understandable as their primary job is sales, but seeing the bigger picture can be equally as important. By forcing them to see another side of the business, they may gain a greater appreciation for the process. It shows them that their decisions will have lasting effects that other people will have to deal with.

Potential Improvements

By having your salespeople work closely with those responsible for collections, you open up the possibility of streamlining the process. Collectors may actually have suggestions for salespeople. Since they are the ones constantly seeing what types of customers do not pay, they may be able to offer some insight that salespeople can later use.
Understanding the collection process does not mean that all salespeople need to know how to collect debt. It means they should appreciate and understand the work collectors do. It may not show any immediate benefits, but more well-informed salespeople are always a benefit to a company in the long run.

Negotiating is not a brute force task; it is one that requires patience, knowledge, and understanding. This is even more important when it comes to collections. Here are some helpful hints to remember during your next negotiation.

Listen to what your customer has to say

It is easy to get so caught up in our own pitches that we forget to listen to what our customer is saying. In many cases you may not agree with what they are saying or it may not be possible to accommodate what they are asking for, but that is not the point. The point is to make them feel heard and respected, regardless of what they are asking for.

Do your homework

Make sure you always know everything that you can before picking up the phone or going into the meeting. What were the agreed upon payment terms? Was there a dispute filed and if so, when? This does not mean you should spend your nights cramming numbers into your brain, but being prepared to answer questions and understanding the topic matter thoroughly can help your company present a professional front.

Understand your customers perspective

If you are trying to collect debt from a customer, it is important to understand the situation they may be in. They could have ten other companies calling them to collect on debt. Even though you may be under pressure to try to collect on that debt, keep in mind they are probably in a worse situation than you. This means that their confident front is just that, a front. The key to negotiating is understanding the position your customer is in and creating a strategy around that.

Validate information

If your customer claims that business will pick up, ask for proof of why they think this. If they say that their store recently flooded and thats why they are late on payment, make sure they are telling the truth. Do not let your customer make excuse after excuse without asking for proof.

Always start high

You should almost always start with the expectation that the debt will be paid in full. As we all know this is easier said than done, but this allows you to seem reasonable when you offer 25% off. Just like you, your customer is trying to get the best deal possible, so allow them to feel like they are getting the best possible offer.

Do not take anything personal

Though is should be avoided, negotiating can sometimes take a darker turn. Tempers may flare, words may be said, and egos can be hurt. It is important though to not take any of this personal. Focus on your job and do not get offended by what a customer may say.

Negotiating tactics may change depending on the situation, but these simple guidelines should give you a good basis to start from. Do you follow any negotiating guidelines?

Finding the right questions to ask in an interview can be hard. You somehow have to encompass the responsibilities of a given position into a series of questions. You need to see how they respond to challenge, but also do not want to push too hard. Here is our advice when hiring in the credit department
Finding a great credit professional can be a challenge. They both must understand the business and financial aspect, but also be personable and work well with customers. Someone with an accounting background may be great with numbers, but may not be personable enough to handle the customer-facing side
Standard, basic questions like education and work history are found on the resume’ itself. So unless something is missing that you want to know, don’t waste your time with what you already have in front of you. Be specific. We like questions like:

• Are you able to analyze cash flow and liquidity reports?
• Can you tell a customer “No” without angering them or losing them entirely?
• Have you ever faced a tough credit decision that the sales team disagreed with?
• How would you discuss a credit hold situation with a valued customer?
• How would you handle a scenario where a customer begins to raise their voice at you?
• How would you handle a customer who wants to go over your head to a superior?
• What tasks do you know you will delegate to someone else and why?

Of course, the candidate with knowledge of your industry puts them ahead of the pack. Try a “How would you handle this [____],” kind of question. Insert a real-life scenario you’ve encountered. Leave out the names of course, but set up the situation as it happened to you. This will not only test their knowledge of your industry but will give you an opportunity to see how they think.
Another important thing to consider is how they sound. It may seem superficial, but it is important that credit professionals come off as personable and trusting when communicating with customers. Knowing all the right answers is great, but it is equally as important that they are able to communicate with customers well.
A great credit manager can be hard to find, but asking the right questions can help you narrow down your search and hopefully hire the right person.