Category Archives: In-House Debt Collection Strategies

Tips and strategies for streamlining your in-house debt collection processes

Is it Time To Accept A Payment Plan?

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Dollar sign, Collection Agencies, C2C ResourcesA cash flow problem is almost always the reason a customer requests a payment plan. The big question is; how do you determine if that’s the best course of action for you and your business?

Before you can make that determination, you need to understand your customer’s need for the request. Find out the backstory. What are the circumstances surrounding the request? Write down as many details as your customer is willing to offer.

The next step is to validate the claims. Is your customer telling you the truth?

Talk to other creditors to see if they are hearing the same things you are. Try looking at your customer’s last 6 months worth of Merchant Statements to see if there’s been a decline in credit card traffic. You might even try talking to their bank to see if a check would clear if they were to issue you one.

A payment plan isn’t the best solution to account that is past due, but it’s certainly better than not being paid anything at all. If your customer’s story checks out, working with him in any way you can (within reason) may help you keep a good customer who is simply going through a tough time and in the long run, may be the most profitable option.

Payment plans are one options that may serve you well.

Ways to Avoid an A/R Dispute

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Wouldn’t you love it if you never had to experience an accounts receivable dispute?

While it may be unlikely that you’ll dodge that bullet 100% of the time, you can reduce the number of disputes by confirming a few pieces of information with every client right from the start.

Thoroughly discuss your policies with new clients making sure they understand your credit terms.

Make it a habit to call your customer after shipments are made to confirm that it arrived. Ask them if they received it in the condition they expected and if the invoice is correct. This is especially important for first time customers or for large balances. This way, you eliminate the possibility of a late dispute, which is likely nothing more than a stall tactic.

Be pro-active by requiring written purchase orders. POs help to keep the details straight while making it easier to match up paperwork and invoices. Since everything is spelled out on that one form, any disputes that arise may be more easily resolved.

In the event of a dispute …

When a dispute is brought to your attention early, it’s far more likely to be a valid one. Don’t respond to it until you’ve listened intently and gotten all the details. Your customer may have a legitimate issue, maybe not. But you won’t know if you don’t hear the entire story.

Certainly there are customers who will use a dispute as a stall tactic. If that appears to be the case, you may want to put your focus on getting the undisputed portion paid, especially if it appears you’ll have some significant sorting out to do for the disputed portion.

It may be your best option to make a payment modification if that works for you. Make sure you explain your accounts receivable policies again so you can avoid future disputes and past due invoices.

Most of the time, disputes can be avoided by a simple follow up phone call once the goods are delivered. Once your customer sees how seriously you take your business and your reputation for good service, he’ll likely fall in step and take paying just as seriously.

Avoid disputes with great communication. Touch base every step of the way!

C2C Resources: Balanced and Fair in Debt Collections

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C2C Resources Debt CollectionMost of us have experienced a cash flow problem at one time or another.

If you’ve made more than a few collection calls, you know; it’s the number one reason for non-payment.

Even the most organized and conscientious customers can fall behind due to cash flow problems. The difficulty you face is that you have a business to run, too. How do you remain fair and balanced with good customers who are experiencing a tough time, while also being fair to your own business?

It’s possible to work with a past due customer in ways that are fair to you both. Start by allowing your customer plenty of time to tell you about the problem in as much detail as he/she will offer. Carefully listen and make notes so you can verify claims when you get off the phone. Demonstrate that you understand what’s been said by repeating the problems back to them.

If your customer offers payment solutions you’ve not thought of, remain flexible and open to ideas. If their idea for payment seems fair and reasonable for you both, put it in writing and have him sign it.

There’s always the possibility that your customer may suggest a payment plan that simply isn’t fair to you or your business. Perhaps you find it impractical or unreasonable in some way. In that case, you may find it helpful to further verify claims through other creditors who are also not being paid before you make any decisions about a payment plan. This may help you determine just how flexible you should be and if you truly want to continue doing business with this customer.

UPDATE: We add this strategy …

In your own mind, frame your collection call this way: You are a problem solver, ready to help your customer get this past due invoice off his back. It’s a financial burden! He wants freedom from it! You can help him get there by being ready with your own ideas for ways to solve the debt.

The more you demonstrate your willingness to work with your customer, the more likely you are to retain him even through this tough spot.

Take your in-house debt collection practices further with this powerful C2C Resources Debt Collection Advice.

Debt Collections Timeline: How to Stay On Track

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Schedule Collection Calls and Notices using a Collections Timeline

A solid in-house collection procedure is one that carefully schedules a series of letters and phone calls that build upon one another. Having a prescribed timeline in which to send collection letters and make phone calls will help you stay organized, fair and reasonable through the course of trying to collect. Sending too few letters or not making enough phone calls may communicate that you don’t take the matter seriously.  But too many can be just as counter productive, being perceived as harassment.

You want to find that sweet spot, sending just the right amount of reminders at the right time. This can lead to successful debt recovery.

The following is a timeline we’ve built based upon a 30-day credit term.  Of course, you’ll need to adjust the timeline to match your credit terms.

Day  
0 Invoice
35 Past due reminder letter
45 Past due follow up letter on smaller accounts or initial past due call on larger accounts. If time permits on smaller accounts, a call is better than a letter at this stage.
55 Initial past due call or follow up call depending on day 45 action
65 Termination of credit letter or choose one of the 60 day demand letters
80 Final Collection call
90 Final Demand Letter

Follow-up is a critical component to a successful collections timeline. If your client makes a promise, follow-up with a phone call if they don’t keep that promise. If you end up sending a Final Demand notice, stay true to the actions you state in it. If your letter states that you’re turning the debt over to a 3rd party collection agency, then do it.

C2C Resources helps clients with pre-formatted collection letters and call scripts through a web based recordkeeping and management software called Profit Maximizer.

Your In-House Collection Policy

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Albert Einstein said, “The definition of insanity is doing the same thing over and over again, and expecting different results.”

No matter what we do, some customers will become delinquent. Controlling A/R delinquency is of paramount importance to the financial health of your business. Bad checks and charge-backs are serious. After all, the easiest way to reduce your profit or go out of business is by an escalating loss of revenue. And since A/R is nothing more than revenue that has yet to be received, it obviously poses risk to the company to which the money is owed.

Handling aged accounts should be done through a process of escalating letters and telephone calls. If you’ve implemented a regimented in-house collection procedure but are unable to resolve an account at 90 days, it’s time for a formal demand letter. But once the demand letter expires, you need to consider a new approach before you wind up duplicating your own efforts. This is where Einstein’s words hit home. Don’t make the mistake of sending follow up letters or making follow up phone calls after you’ve sent your final demand letter. You’re diluting the spirit of the demand, giving the debtor a sense of immunity.

C2C Resources offers a web-based collection software program … and it is free to use. It provides tools that will enable you to focus your A/R efforts and can help you formulate and implement an effective internal collection policy. There is no cost or commitment required. C2C Resources provides this service in an effort to assist our partners in navigating pitfalls associated with aged receivables. Use of the system will result in fewer accounts hitting the 90 day mark and will result in more efficient cash flow for your business.

In creating that policy, the most important thing to do is schedule a series of letters and phone calls that build upon one another.

The 2 Principles to Extending Credit

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There are 2 basic principles critical to the extension of credit.

Ability vs Intent, C2C Resources1. The ability to repay a debt

2. The intent to repay a debt

If you can verify the intent of your potential customer and his or her ability to repay the debt, the decision to extend credit or not should be relatively easy. Your credit investigation should quantify ability and intent.

How do you verify the applicant’s ability to repay a debt?

Start with your applicant’s income and assets. Consider verifying their income by having them provide copies of paychecks and bank statements. When dealing in a corporate credit environment, financial statements should be enough to provide this information.

How do you verify the applicant’s intent to repay debt?

Past behavior is an excellent indicator of future behavior. A consumer credit report is a great starting point. There are many reporting agencies to choose from. Three of the larger, reputable agencies are Equifax, Experian, and TransUnion. In the corporate environment, the best way is to contact bank and trade references.

When obtaining a credit application, the applicant should provide the following information:

  • Applicant Company Legal Entity Name (including any d/b/a’s)
  • Corporate Address
  • Telephone
  • Fax
  • Website
  • EIN (Employer ID Number or Federal Tax Identification Number)
  • Principals’ Legal Names (and SSN / DOB’s / Addresses if requiring a personal guarantee)
  • Banking References including banker’s name and contact info
  • Trade References (at least 3)
  • CPA contact information
  • Amount of credit applied for
  • Requested Terms: Any special terms requiring a “meeting of the minds” (i.e. finance charges, late fees, personal guarantee, authorization to pull credit on officers, etc.)

Once the credit application is submitted, it’s imperative that you verify the information. On any point, if you find a discrepancy, discuss it with your potential customer.

  • CONFIRM CORPORATE IDENTITY: For most states, the Secretary of State website provides a way for you to verify the corporate status online. Print the information and attach it to the application to keep in your customer’s file.
  • PHONE NUMBER: Dial it. Did they answer with the name given or another name?
  • VISIT THE WEBSITE: Print the home page and keep it in your credit file. Look for any information that may help you with your decision like press releases, news, info on suppliers/vendors, etc.
  • CONFIRM EIN: There are online sites to facilitate EIN verification.
  • CONFIRM PRINCIPALS: In the even that you require a personal guarantee, you may want to verify the validity of the individual’s address. If the potential risk is substantial, pull credit reports on the guarantors for further insight into their intent and ability to pay their personal debts. This could become a personal debt if the company defaults.
  • OBTAIN BANKING REFERENCES: You may contact their bank and request a reference, however, the bank may decline to give you any information. If so, ask your applicant to provide a recent bank statement.
  • OBTAIN TRADE REFERENCES: Naturally, people provide references they know will give a good one. However, if you look on your applicant’s website, you may find other suppliers/vendors that might give you a more objective reference.
  • OBTAIN CPA INFORMATION: It’s not necessary to contact the CPA during the processing period, but should the applicant go into default, the CPA may be of value.

Make sure you document all the information you gather during the credit investigation. Keep all the information in your customer’s file. You will need it in the event that they default.

Upon completion, determine the amount of credit you are comfortable extending to your new client. Any discrepancies need to be discussed and if you feel the explanations are insufficient, you may wish to reconsider extending terms to the applicant. Any applicant hesitant about providing information should be a cause for concern.

The credit application is an invaluable tool should the customer default. Keep detailed records together with the credit app in your customer’s file. It’s and excellent idea to scan the documentation onto your hard drive, as well.

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4 Steps to Successfully Extending Credit

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As a business owner, you know how your Accounts Receivable impacts your bottom line.

Not every industry is the same but traditional estimates suggest that for every dollar you have as a “non-performing” asset, you’d need to bring in three dollars in new sales to offset its effect. Given that economic times are tough right now, it’s possible that your sales efforts may not be generating the results they used to. Between that and a tight credit market you may find it tough to expand your business or even stay afloat.

It’s often said, “A loan well made is 90% collected”. Success in A/R starts with a solid credit extension policy. Follow these 4 steps as a foundation:

1. REQUIRE a Credit Application: As you know, credit applications are used to help determine the credit worthiness of the applicant.

2. VERIFY through processing: For a Credit App to be useful, the information must be verified. Through processing you’ll want to confirm the corporate identity, contact vendors and request references. You may even consider pulling a credit report on the principals of the company. If you can’t verify any point on the credit app, discuss it with your potential customer. If he’s not willing to wait while you process the application, this may be a red flag.

3. EVALUATE the credit: If the results of processing lead you to extend credit, we advise keeping the terms short initially. As your client builds a payment history with you, you can lengthen the terms. If you are feeling uncertain of extending terms to your potential customer but you still want to do business, consider requesting a ‘personal guarantee’. It will obligate the individual as well as the company for repayment of the debt. If your potential customer is unwilling to personally guarantee the account in exchange for credit, you may want to reconsider doing business with them.

4. REQUIRE down payments: This is a great way to secure yourself when extending terms. If you can get enough money up front to cover any costs or capital outlay, you will minimize the damage done should the account go bad. Determine what your cost is and then try to secure at least that much as a down payment. This way, your customer has vested interest and is more likely to follow through with payment-in-full.

Follow these steps for a solid credit extension policy.