Improving Your Collection Skills

Improving your Collection Skills

[March 28, 2008, New Horizon Hotel, Mandaluyong]

Copyright 2008 The Harry Pound Company. All rights reserved.

Training for Less 2

Improving your Collection Skills Credit and Collection professionals play a very valuable role in ensuring the profitability and financial stability of a company. However, collecting from customers is becoming more and more difficult. That is why the collectors need to be armed with better skills so they can eliminate and/or reduce the incidence of collection problems before they occur. Collection efficiency depends on how proactive, persistent and committed the collectors are in securing payment from debtors. This seminar was designed to enhance the skills of individuals who perform collection work for your company. Packed with updated and applicable Collection concepts and competencies, the participants are expected to get more energized to reach their collection targets. Program Objectives:

1. To motivate the collectors by appreciating the value of their work 2. To enhance their collection techniques through new concepts and skills in managing their receivables 3. To apply the techniques they have learned to improve and strengthen the companys profitability and cash position

Training for Less 3

Module I The Habits of Highly Effective Collectors A. Getting Rid of Negative Energy

1. The Push and Pull Principles of Motivation Push and pull is a matched pair: Pushing is forcing yourself and others to perform, while pulling is inspiring and motivating people to contribute their best. It is creating desire rather than creating fear. It is creating attraction rather than repulsion. In business motivation, pushing is what managers and supervisors do, while leaders use pulling. Pulling is more difficult than pushing, but is ultimately more effective. When you push, you do not know what direction the other person will take. It is like the sheepdog running into the flock of sheep: they all head off in different directions. Pulling has just one direction. It is like being the shepherd, towards whom his flock will move.

For the individual: The Push Principle means: I force myself to act, whether I want to do it or not. I feel that there is no other option but to obey. The Pull Principle means: I choose to act because I have decided what I want, and I am determined to achieve my objective. Certain situations make us push or pull ourselves and others into action. The key is to use them together and also balance push with pull. We sometimes need a shove to get us going. However, too much shoving might be counterproductive in the future!

2. The Negative Emotions that affect your Collection Mindset

According to Brian Tracy, renowned motivation guru, there are four obstacles to a positive work attitude, and they are:

a. Fear when things are not going as we expected, our immediate response is to feel fearful or anxious. When the fear gets to be so strong, we might find ourselves paralyzed with inaction or reverting to patterns of behavior that suit us and not the customer and the work expectations.

b. Worry - Fear triggers worry, and we begin to use our power of imagination to create all sorts of negative images

that can cause us unhappiness and insomnia, and make us unable to perform efficiently.

Training for Less 4

c. Anger - Fear and worry create anger, or what has been called the "victim complex." Instead of moving constantly forward in the direction of our dreams, we begin to react and respond, and to blame other people and other situations for our problems and challenges at hand.

d. Doubt - Surrounding these negative emotions is the mental quality of doubt. Doubt is a fertile breeding ground for

the other three negative emotions. Therefore, to eliminate these obstacles to positive thinking, you need to systematically eradicate the weakening emotion of doubt. When all of these negative feelings build up the result is APATHY a. You lose interest or have little concern for doing better than what is expected b. You become indifferent, bored and lazy to push yourself harder c. You seem be always looking for excuses as to why youre not doing well d. You get contented with what you have even if you can achieve more

3. Clarifying your Purpose and Appreciating your Job

According to Danah Zohar, author of SQ - Spiritual Intelligence, a major issue on people's minds today is meaning, and many other writers point out that the need for greater meaning is a central crisis of our time. In fact, this "crisis of meaning" affects us with regard to our work, how we live and our perspective on life itself. Focusing merely on our IQ or rational intelligence isn't enough. Raising our EQ or emotional intelligence helps but is incomplete. The Life On Purpose Process is about developing our SQ - our spiritual quotient and intelligence. Here are some alarming statistics that reveal how disengaged most people are at work, according to data collected by the Gallup Organization in 2001:

a. Less than 30 percent of office workers are fully engaged at work b. 55 percent are not engaged c. Another 19 percent are actively disengaged, meaning not just that they are unhappy at work, but they are

regularly sharing those feelings with their colleagues. Thats about 1 out of every 5 people at work.

Training for Less 5

Why did you choose to be working as a collection professional?

Why are you working in your company?

What do you hope to achieve from a career as a collection professional?

B. Applying the Power of Psychology to Debt Collecting

1. Understanding the Psychology of Debtors Question Answer

Why do most of us pay our bills? Its because we know its the right thing to do. If we dont pay wed feel guilty.

Question Answer What about those who dont pay their bills?

Dont they know that paying their bills is the right thing to do?

Chances are that they do know.

What may surprise you though, is that many of your worst debtors probably consider themselves honest and honorable people.

They believe they are people who pay their bills, but develop what psychologists call as "dissonance" in the event they do not pay.

a. Why people develop Dissonance

What is DISSONANCE? It is the uncomfortable feeling we get when our actions do not match our beliefs.

Training for Less 6

When people feel guilt, they have 2 choices:

ONE - They can change their actions. In the case of one whos not paying bills, this means paying

TWO - They can use one of the many mental techniques available to stop themselves from feeling guilt.

b. Ways Debtors exhibit Dissonance

The 4 Most Common Mental Techniques Avoidance

Generally speaking, we look for information that confirms our views, but do not seek out information that might be contrary to our existing views. Smokers do not typically read anti-smoking literature, and debtors often do not read reminder notices.

Denial Many debtors will not only deny it to you, but also to themselves. They ignore it and sometimes it seems to go away (depending on how good they are at denial, and how poor the creditor is at collection).

Thinking of enough good things to drown out the bad thing "Ok, so I didn't pay this one on time, but I've been dealing with this company for years and this is the first time that this has happened. Look how many other bills I got paid. This is just one that I didn't manage to get to."

Change the view Some people call this "rationalizing". "Well, its not like its a lot of money that I owe them, and anyway, I dont like that creditor, and the person I spoke to was so rude, and the bill was wrong" In other words, its not their fault and the creditor doesnt deserve to be paid. What now? Remember that a debt means borrowing a specified amount of money or goods and services with a promise to pay at a specified date.

Guilt is a powerful tool Most people will feel some guilt about breaking a promise.

Training for Less 7

Example: When I talked to you last week, you promised me complete payment this Friday, and that is today. [Pause.]

Often a debtor is really experiencing serious financial problems but you want him to know, for future reference, that not paying you is the wrong option to choose because that lets him in for an awkward discussion if not something worse. If you want to turn the screws more viciously, a powerful sentence is: You said you would pay ... but you didn't. But Guilt can only go so far. Avoid going too far in making the customer feel guilty and GIVE the debtor a WAY-OUT!

If you make a person feel guilty about not paying, there are two obvious things he can do. One is to pay, and the other is to convince himself that he was actually right not to pay.

This is a crucial point. The BEST WAY is TO give him a WAY OUT! We call this saving face and are seen when dealing with Asian customers, but it applies to everyone.

c. Understanding the Common Ways we Collect

Situation: Michael Cruz promised he would pay his P50,000 credit card debt due last week when you spoke to him on the phone. You speak to him seven days later and he still hasn't paid. What do you think is the best option?

Action 1 Avoid Mentioning the Debt

Effect

Most Likely Outcome

Say, I just called to ask if you have something for me, you know If you dont, its okay

No guilt

Allows and probably encourages his behavior

Action 2 Use Guilt

Effect

Most Likely Outcome

Say "Based on my record you promised payment on June 22nd, but you haven't paid"

Creates guilt

Encourages him to "rationalize" not paying to reduce the guilt

Action 3

Use Guilt but give him a WAY OUT Effect Most Likely Outcome

Training for Less 8

Say, "when we spoke last June 15, you made an arrangement with me to pay on the 22nd, but you haven't (Use Guilt) I know we all get busy sometimes and forget things. You really need to get this paid today because this has been long overdue. (Empathize) Even half of it, or P25,000 will do, as long as I get some of it paid within the day. Would that be alright? (Offer him a way out)

Creates guilt but offers a way to

reduce it

Encourages him to pay to reduce the guilt as well as take advantage of your proposed alternative for paying his debt. He might appreciate the understanding since maybe he really forgot to pay. You get him to focus on your real objective which is to get payment.

2. Understanding the Psychology of Debt Collectors

a. Are you really meant to be a collector? Case Analysis: You have been standing in line to watch a movie for more than 30 minutes. Then you see a man squeezing himself into the queue in front of you. What do you do?

Do you grumble under your breath and let him in?

Do you say, "Hey! There's a queue here. Go to the back."

1) 80% are reluctant collectors DEBT-COLLECTION professionals estimate that at least 80% of people have terrible problems asking for money. Even if there's no problem, they just hate asking. They can't stand the idea of telling someone, "You owe me such and such, could I have the payment please?" Are you like that?

2) 20% are born collectors The remaining 20% of the population are born collectors. This means that these people have the courage and a strong sense of what is right and what is wrong, and are able to assert their rights to get the collection. Are you like that?

Dont worry, even if youre not a born collector, you can learn the skills and develop the habits for effective collection.

Training for Less 9

b. The 3 Dimensions of People

The Intellectual dimension is the logical part where we think, learn facts, gather information, make choices, and solve problems. In collection work this is significant; but simply having technical skills doesn't guarantee effectiveness when interacting with people.

Next is the Emotional dimension. It affects how we feel about our life, job and the people we work for. This may not seem as important, but it's usually more influential. Feelings drive many of our choices and decisions. Studies have shown that up to 85% of our job success is based on feelings, attitudes and emotions. Often, people know what to do, but just don't feel like doing it.

The deepest dimension is the Unconscious/Creative. This is a profound level that houses our values, feelings of worth, and self-esteem. It is our own perception of our true worth and value as people. It is very powerful and controls all our actions, feelings, behavior, and abilities. It makes up our internal paradigm of who we believe we are.

3. Applying the Basics of Emotional Intelligence to Collection Work What are the ingredients that make up superior performers in organizations? Must they be intelligent? Know their job? Have unyielding drive? Be likeable? Recent research indicates gray matter or technical/job knowledge are but threshold competencies. What differentiate the "stars" are the personal qualities, the so-called "soft skills." The top 2 reasons employees get "derailed" in their careers, according to the Center for Creative Leadership (US), are:

1. Inability/unwillingness to adapt and 2. Failure to establish and maintain collaborative working relationships

Now Dan Goleman has followed his 1995 groundbreaking book, Emotional Intelligence, with a cutting edge application of his research to the world of work. Goleman's thesis is that somewhere between 75% and 90% of effective work performance is attributable to "emotional intelligence" (EI).

Training for Less 10

What is EI? He defines it as, "the capacity for recognizing our own feelings and those of others, for motivating ourselves, and for managing emotions well in ourselves and in our relationships." He discussed five (5) important domains where we need to develop our emotional competencies:

How we manage OURSELVES Self-Awareness

An ability to notice what you are feeling in the moment and to tap into your intuitive self as you deal with the daily decisions

and challenges of organizational life.

It includes exercising a self-confident, candid openness to feedback about your strengths, your blind spots and where you

need to grow.

Self-Regulation Managing your deeper emotions and impulses appropriately,

rather than self-indulgently (i.e. losing your temper, lashing out at others if your demands are not met).

It includes positioning these feelings against the wider perspective of your longer-term goals and the interests of

others and the organization at-large.

Motivation This is a combination of an internally generated drive to achieve, an emotional commitment (often called passion) to goals (both your own and the organization's), and a willingness to mobilize yourself and others to action, all the while placing an optimistic

"spin" on challenges and setbacks you face.

How we manage OTHERS Empathy

Empathy means having a genuine interest in, and sensitivity to, the perspectives, concerns and needs of others. In companies,

it includes a service orientation to the customer as well as a healthy attunement to the prevailing organizational politics.

This is an absolute key to establishing working relationships. It builds on the first two domains. You can't tune in to others if

you are preoccupied by your own disrupting feelings.

Social Skills The ability to influence others and interpersonally relate

effectively are prerequisites to career success. To influence, you deal with the emotional state of others.

With individuals, you build rapport, communicate, resolve disagreement, and inspire them towards your vision and ideas.

With groups and teams, you network, collaborate, create a sense of identity, and foster the synergy from the pursuit of

collective goals.


4. Treating Collection work as part of Customer Service Establishing a customer relationship is relatively easier than to maintain it. Customers today require a high level of support and after sale service, in addition to quality products at competitive prices, in return for their loyalty. As a result, customer service has become an important task for every department in the company - including the credit department. The goal of the credit and collection department is to accomplish the goals assigned to it with as little damage to the relationship between the company and its customer base as possible. Remember: Effective collection is influenced by HOW the clients feel about you. In other words, if they feel that they have been given a bad experience, they will react by giving you a bad experience in return.

Here are some tips to avoid this:

Recommended Actions to Improve Customer

Relationships

Description

Appreciate their Business Every time you collect, thank them. Some collectors just assume that it is the obligation of the debtor company to pay. However, if you want a good relationship with them, appreciate the business they have given you. Dont just react when they fall behind in paying.

Be aware of Competitors Collection Policy Changes

Maintaining a loyal relationship between customer and supplier is not confined to products and service that your company offers, it has included credit terms and policies. A customer will switch if your competitors offer them better terms, convenient collection practices and longer credit limits. Regularly study how your present credit policies can be used as a competitive advantage.

Harness the Power of Information

Routine collection activities sometimes develop a habit of taking reviewing all pertinent customer information for granted. A good example is collecting an account that has already been paid. This might offend the client and create a conflict that would affect all future collections that you will make. Gathering and reviewing all relevant facts before collecting is a MUST, it isnt a waste of


time. Make an effort to protect the relationship

In the event that there is a discrepancy or doubt about the validity of a customers position, i.e. they already paid the invoice, never tell them that hes wrong and youre right. Arguing with customers might do more harm than good. In the interest of retaining customers, there should be a bias towards allowing their point of view to prevail, until you have checked its validity. Im sorry but our records show that it hasnt been settled, but perhaps there was an oversight. I will check it again, and will give you feedback by tomorrow morning. Thank you!

Limit collection interactions to those who are directly involved in the Payment & Collection

The customers accounting department is the one solely responsible for scheduling and payment. The accounting or accounts payable people are prepared to answering your questions because they are the ones in charge. They are accustomed to the types of questions and challenges a collector may ask.

Dealing with or directly talking to people outside the accounting, i.e. the purchasing department, the sales manager or the owner, may be risky. Why? One is that they might not know how to answer you. Two is that they may be shocked or offended by the directness of the collector's approach.

Use Threats as a last resort Holding deliveries, discontinuing credit terms, threatening to sue and other aggressive collection techniques should be used sparingly. Some collectors might think this would be an effective way to speed up the payment, but it might turn out to be counterproductive, and more harmful.

Notify the customer and the sales department about the possibility of a credit hold and try to give as much advanced notice as is practical under the circumstances. This way, you would not be perceived as a bully and the customer is given due respect and warning.

Strengthen the relationship but get the job done

Giving good customer service doesnt mean giving in to the customers every wish. This is the tightrope that collectors have to walk. You must be aware of your objective at every customer interaction and do everything to protect the companys interests while serving the customers to the best of your abilities.


Module II Analyzing and Resolving Collection Problems A. Credit Evaluation

1. The Need for Regular Credit Reviews Segmenting accounts has been a normal activity of Sales and Marketing. Experts are now suggesting that the same segmentation be applied to Credit and Collection. It is an all too familiar one-size-fits-all strategy for most collections departments. Segmenting customers into categories of debt and adopting a different approach for each group is an effective strategy for debt collection. We know that companies are not exactly averse to segmentation, as most marketing and sales people use this to assess new and existing customers. Applying segmentation to the collection process goes beyond simply analyzing payment data. It takes other variables into consideration like risk, behavior, amount of indebtedness and others to give a clearer view of a customers ability to pay, and also the likelihood of them paying in full and on time. The regular review of accounts is a must today because clients who have been good payers before may not be as good today. It is recommended to be done every month or every quarter.

Evaluation Criteria Rationale Is he paying his debts on time?

Payment history typically is a significant factor. It is likely that the rating will be affected negatively if there are late payments, if it had an account referred to collections, or if the client declared bankruptcy.

How much is the outstanding debt of this client?

This evaluates the amount of debt the client has compared to his credit limit. If the amount owed is close to the credit limit, it is likely to have a negative effect on his rating.

How long is his credit history?

An insufficient credit history may have an effect on the score, but that can be offset by other factors, such as timely payments and low balances.

How much is the value of business that this client gives our company?

If it costs more to serve this client than the business that he is giving us, then you need to be stricter and pay more attention to this client.


The Customer-based Strategy Approach This approach does not completely ignore the key principles of the traditional marketing approach. Providing value to customers is still critical. However, this approach recognized that sales and marketing investments in customers must be recovered over the long run. Specifically, this approach highlights two sides of Customer Value: The Value a company provides to a customer

i.e. Value = products and services offered

The Value a Customer provides to the Company

i.e. Value = stream of profits achieved over time

INVESTMENT RETURN ON INVESTMENT Combines the Sales & Marketing Viewpoint With the Finance & Top Management Viewpoint

Customer is KING Cash is KING

The main point is that investment in a customer today may provide benefits in the future. In that sense, customers are assets that a firm needs to invest in. At the same time, as with any investment, the firm needs to assess the potential return. Since not all customers are equally profitable, investment in customers should vary by their profit potential. Gupta and Lehmann stated four scenarios with different values to and of customers. Star Customers These are customers that get high value from the products and services of the firm and also provide high

value to the company by way of high margins, strong loyalty and longer retention time The relationship is balance, largely equitable and mutually beneficial. This is a win-win situation where customers get superior value and in return earns the firm loyalty and higher profitability. This is the best type of customers to build.

Lost Cause Customers

In contrast to Star Customers, Lost Cause customers do not get much value from the products and services of the company. Generally, these customers are marginal for the firm, their main value is if there are enough of them to provide the economies of scale necessary to achieving greater sales, i.e. reduced production costs and promotion efficiencies. Without economies of scale, and if the company cannot migrate them to higher levels of profitability, it should consider either reducing its investment on these customers of even firing (dropping or shifting them to other suppliers) them.

Vulnerable Customers

These customers provide high value to the firm, but do not get a lot of value out of the companys products and services. These may include newly acquired customers whose experience is less than stellar and who


may be wondering why they chose you in the first place. These may also be regular long-time customers who are starting to question why they have remained loyal to you. These customers are vulnerable and prone to defect to competitors unless corrective actions are taken. A company can invest in these customers through better product offerings, additional services and related activities. These customers may deserve better service than others. The concept of service discrimination is similar to price discrimination, where not all customers pay the same price for a product. Although such actions might generate a backlash from other customers, it is also possible that customers will accept the old adage that you get what you pay for.

Free Rider Customers

These customers are the exact opposite of Vulnerable Customers. These customers get superior value from using the companys products and services but are not very valuable to the firm. For whatever reason (e.g. large size, strong competition), these customers are exploiting the relationship with the company. In effect, they gain more from the company than what the company can get in return. Examples are customers who demand faster delivery, bigger discount rates and even longer payment terms that what have been agreed upon. In general, a firm should either reduce its service level given to these free rides or raise prices. Although this will reduce the value to customers and there is a risk of losing them, it will, if successful, enhance their value to the firm. There is a saying that goes, A good sales and marketing person knows when to walk away from a sale.

Key point: Successful customer-based strategies require that a company considers both the value the firm supplies to the customer and the value the customer provides to the firm.


2. Managing Conflicts between Sales and Credit and Collection By the very nature of the goals of the credit department and the sales department, disputes between credit and sales are inevitable. Dispute can and should be handled professionally and diplomatically. Here are some tips on stopping disputes from getting out of hand:

1. Demonstrate that your goal is to find a workable solution to the problem - not to defend whatever position you initially took.

2. If you are "hot and irritated" take the time to cool down before having a discussion about the dispute.

|

Value of

Customers

Value to

Customers

High

Low

High Low

Star Customers

Free Rider Customers

Vulnerable Customers

Lost Cause Customers

High Value from YOU Low or No Value from them

High Value from YOU Low or No Present and Future Value

from them

High Value from YOU High Value from them

Low Value from YOU High Value from them

DROP or GROW

NURTURE & GROW RECOVER & PLEASE

CEASE & RESIST


3. Focus on the issues at hand. Keep personalities out of the discussion. Don't bring up past disagreements, unless they relate clearly and specifically to this customer or this situation.

4. Choose your words carefully. For example: Don't say: "You're completely wrong." Say instead: "I understand what you are saying, but I don't agree with you."

5. If you win, handle your success with modesty. Don't be arrogant. If your decision is overruled, accept it graciously. 6. If you find that you are wrong [based on new information], make the change and concede to the salesperson's

position gracefully.

B. Terms of Sale

1. Clarifying and Enforcing the Credit Limit and Time Limit to Debtors a. Watch out for customers with a bad credit history. You cant expect that a company or a person with a

history of bouncing checks or paying their bills late will change their ways when dealing with you. If you must do business with the chronically late: lay down your credit rules early and firmly and start the relationship off slowly.

b. Once you begin doing business with specific clients, give proper and constant attention to these

accounts. This involves setting up a collection schedule and following each step thoroughly before moving on the next step. It means never doing a haphazard job and being on top of things.

c. Resell the payment terms Sales people must work hand in hand with the credit and collection department in

reselling the payment terms. During negotiations with clients, they can remind them of the payment terms. If there are already collection problems encountered, determine the reason for the communication breakdown between your customer and you and use the best possible method to show the benefits of reestablishing a payment schedule. Reminders, appeals and phone calls can be used for this.

d. Offer discounts for early payment and add interest to late payments, if possible. A typical discount is two

percent to three percent off the total if the bill is paid within 10 days of the invoice date. The maximum amount of interest that can be charged varies by state.

e. Develop a collection reminder system especially for those who are habitually late. Never wait -- let them

know that you keep close track of your accounts receivable. Just dont be initially too aggressive or demanding when reminding them.


f. Until a customer pays their bills, dont do any more business with them (depending on the situation and the relationship you have with this client.) Dont bend on this rule -- youll only cause yourself more problems and spoil any chance of collecting what youre owed. If you really want to keep doing business with a customer who owes you, insist that any new products or services they receive from you are c.o.d. -- cash on delivery.

2. Using a Debtor Classification System

It is easier to classify clients by using a RISK code. The Better Payment Practice Campaign in the US proposes this guide of client categorization.

A = (Low or No Risk)

Those clients with the best credit references and payment records

B = (Average Risk) Those clients who pay but are sometimes late

in their payments

C = (High Risk) Those clients who have become slow payers,

affected by business downturns or have lawsuits against them.

N= (New)

Customers you have done business with for less than six months

Code 'C' identifies persistent slow payers, or having problems with solvency. Despite the risk, you may have to take on some 'C' accounts if you can't get enough business from 'A's and 'B's. There is good profit to be had from 'C's if you monitor them carefully and minimize your risks. If you identify your 'C' customers, you can put extra sales effort into the 'A's and 'B's in future to put your business on a sounder footing. But remember to review these codes over time.

C. Invoices and Statements 1. Promptness and Accuracy of Invoices and Statements

It is very common for clients to use the invoices and statements as excuses for delaying payment. Since giving invoices and statements are routine activities, there are times when the process is taken for granted.


Here are some tips to ensure its promptness and accuracy:

a. Make sure your customers know your terms of sale. Ensure these terms appear on every document that is sent to customers including invoices, monthly statements, collection letters, and notices.

b. Check and double check the invoices Before forwarding the documents to clients, take extra care in checking the items and figures listed

c. Maximize the use of Monthly Statements 3) A monthly statement is summary of all outstanding invoices, debits, charges, credits, and payments made. 4) It is intended as a "friendly reminder" to customers about overdue invoices. 5) Unfortunately, some customers will deliberately ignore the due dates listed on their creditors' invoices, and will only pay

when their monthly statement arrives showing invoices as past due. 6) Credit professionals must strongly discourage this practice in order to protect their company's cash flow. Insist that your

customers pay invoices as they come due, rather than on receipt of monthly statements. 7) As a last resort, if a large and important customer insists on paying only against account statements, generating

statements weekly to that customer - even if the process cannot be automated if you want to eliminate the customer's excuse for withholding payment.

8) Always include this key information on your monthly statements: Your invoice number The customer's purchase order number The invoice date The discount due date and/or net due date Your telephone number Your payment procedures (i.e. collector visiting schedules, payment through banks, etc.) An invitation for the customer to call to report problems or request supporting documentation Your company's terms of sale

2. Preventing Discrepancies from being used as an excuse for payment delays Although companies have specific procedures in handling collections, the collector has to be flexible when dealing with different types of clients as well as payment procedures. The following guide questions are helpful in carrying out the collection system:


a. When should the first payment reminder be given, i.e. a week before due date, etc.? b. How long after a bill has been due should the first notification be rendered? c. How much time should elapse between the first statement/notice and the personal visit or letter? d. How long should mild notices be sent before resorting to firm actions? e. What arguments or appeals should be used?

D. Collection Follow-up

1. The Need for a Systematic Payment Follow-up procedure There are various means of carrying out the collecting function, either in writing, phone calls or personal visits. The following are the steps used in the Collection System:

1. Notification A formal and impersonal notice given to the client (either by mail or telephone) 2. Reminder A more elaborate notification calling attention to facts that are not in the first message, i.e. date due,

amount due, form of payment acceptable, etc.

3. Appeals When notifications and reminders have not brought results, the collector should now send carefully worded personal letters or phone calls. a. Appeal to Sympathy this is the weakest and least effective of all appeals wherein the collector

pleads that the debtor pays b. Appeal to Self Interest shows how the client will benefit from prompt payment of the account c. Appeal to Fair Play persuades the debtor to pay in the light of fairness and good business d. Appeal to Pride emphasizes the importance of a good credit rating and good business standing e. Appeal to Honor implies existence of a contract, whether actual or implied f. Appeal to Humor uses a light-hearted or humorous approach in debt collection

4. Action This consists of mild or severe, vague or specific threats. The most commonly used are: a. To hold delivery of orders until back bills are paid either partially or in full b. To file unfavorable reports to those who inquire about the clients credit standing c. To report delinquency to government institutions d. To hand the account over to a collection agency e. To file a lawsuit

5. Procedure after the threat letter

This is a letter coming from a lawyer or the company regarding possibility of suit with the client. The most important thing is to follow through with the threat or else you would lose your credibility.


2. Improving your Collection Communication Techniques a. Letters, Emails and Fax

E-mail is cheaper and faster than snail mail, less costly and less intrusive than a phone call, and less trouble to send than a FAX. For these reasons, e-mail is becoming a good and accepted way to communicate with debtors if you are unable to reach them by telephone. Here are some tips for using e-mail properly for debt collection:

1. Be sure you send the email to the specified recipient's address. It would not be good to misdirect a collection email to an unrelated third party.

2. Start with a descriptive subject line. If the subject line does not make sense to the debtor, your message might never be opened.

3. DON'T TYPE IN ALL CAPS. This might offend the reader. Use mixed case and proper punctuation. 4. Use emoticons like smileys, and acronyms sparingly. A collection letter must be professionally written. 5. Keep your email short and direct to the point. Avoid sending irrelevant large attachments, instead, ask if the

customer requires supporting documentation 6. Be careful, the Internet is not secure, and that it can [and will] be read by an unintended third party.

b. Sending Effective Collection Reminders and Letters

Here are some ideas for creating more effective business correspondence including letters, faxes and e-mail messages:

1. Make it perfectly clear to your customer what action you want him to take when they're reading your fax, e-mail or letter.

2. Keep your correspondence positive. Assume that customers can and will pay a past due balance, or that customers want to repay deductions taken in error. Include all the relevant facts, and any supporting documentation.

3. Avoid jargon and confusing terms. 4. Keep sentences and paragraphs short. 5. Consider adding a post-script to reinforce your message. 6. Eliminate obsolete expressions from your collection correspondence, such as:

Avoid: Use Instead: "Enclosed herewith" "Please find enclosed"

"We urge and recommend that" "We recommend"


"At your earliest convenience" "As soon as possible"

"For your perusal" "For your review"

"Thanking you in advance.." "Thank you"

"It is incumbent on you to" "We need you to"

"We are in receipt of" We received"

"It is our belief and opinion" "We believe"

"We urgently request your immediate attention to this matter" "

"Please respond immediately"

c. Telephone Communication

Collection calls through the telephone are the easiest and most convenient way to follow-up on payments that are about to be due. Calls should not be made only when an account has become delinquent. Some creditor companies establish a grace period before collection calls are made. This is an invitation for customers to delay payments. There is no advantage to establishing a grace period of this type.

Collectors should take the initiative and be more proactive The longer you wait to make the call, the more the clients will think its okay to delay payment

Calling to remind clients of accounts that are about to be due is beneficial 1. It lets them know that youre keeping track 2. It clarifies that you expect to collect in full on a specific date 3. It helps you avoid the excuses and delays and prepare yourself on how to handle

them, i.e. lost invoices, signatory out of town, etc. 4. It gives you the chance to personally speak to someone who will take

responsibility for you to get paid

Before calling, be sure who your real target is and stop leaving messages

If the person you want to speak with is out, rather than leave a message - call again later.


In the event that you cant get through to the person you need to talk to use the two & up rule

Don't waste time trying to contact the same person more than twice. If you have called twice and left messages each time, move to the next level. Example: If you tried to reach the Accounts Payable Manager, ask for the Controller. If the Controller also fails to respond after two calls, contact the CFO or the company owner.

Prepare yourself mentally for the call

Gather information and review your records before making the call 1. You can find out the status of past payments or if there are pending orders you

can use as a leverage for getting paid 2. You can study possible collection strategies that you can use 3. You will not be caught by surprise if and ever they start negotiating with you over

the phone

Time your calls properly This is critical and it needs your knowledge of the specific clients habits and preferences. Placing a call too early or too late in the day gives customers a built in excuse for not answering their phone. Schedule collection calls in your customer's "prime time" (usually 9 am to 12 noon)

Be prepared that you will be treated as an interruption.

Every time you call someone, you are interrupting their work and flow of thoughts. To avoid any negative reaction, here is a suggestion:

1. Speak clearly, identify yourself and your company 2. Greet them with sincerity and then pause this gives them the chance to switch

their minds and focus on your conversation 3. Match their tone and language if theyre serious, be serious and if they sound

upbeat, sound as cheerful as you see fit 4. Get right to the point but be diplomatic they might have other important things to

accomplish and sounding aggressive might make them tune-out 5. Never leave things hanging and be firm about getting a commitment 6. End with a positive note and briefly summarize what you have agreed on


d. Face-to-Face Communication

Customer visits are time consuming and expensive. However, these visits can offer the collector valuable insights about the customer. To make them more productive, consider these ideas:

Review the account file before you make an appointment and clarify your objectives

Check the account status of the specific client and be clear about why you are meeting with them, i.e.

1. Are you collecting or following-up on overdue accounts? 2. Are you visiting to strengthen relationships? 3. Are you providing them with updates about their account? 4. Are you negotiating with them to collect payment? 5. Other reasons?

Always make an appointment and confirm it. Don't show up unexpectedly and uninvited [unless the entire reason for the visit is to try to extract payment from the customer]

Inform the sales department of your plan to visit the customer

This would ensure that there is consistency in your companys approach, as well as provide the opportunity to discuss issues that need to be discussed with the client

Inform the client of the reason for your visit, if possible, agree on the agenda

This would prepare them to discuss specific matters with you

Arrive on time and be on your best behavior Whatever the reason, remember that you are the guest so be professional about it

If the person you need to talk to is unavailable and his subordinate was chosen to replace him/her

Be polite and keep the meeting brief. Try to reschedule with the decision maker

If you need to ask for updated financial statements, this is the right time to do it

This is deemed more respectful than doing it by phone and it is harder for the client to say no

Let your demeanor show that you are not there to threaten or offend them

Some clients take personal visits negatively especially if you dont regularly do it Do everything you can to convince them that youre intentions are good and how it will benefit their company, not just your company.


Module III Improving your Collection Techniques A. Managing Customer Excuses

1. Assertiveness Training for Collectors Some clients have a tendency to overpower or look down on collectors in the hope of delaying payment. This is where assertiveness is very important. Being assertive means having the ability to stand for what is right and to hold your ground in a mature and confident manner.

a. The top 2 Key Abilities of Collectors

1st: Effective collectors have the ability and the courage to say hard things to customers

2nd: Effective collectors have a good understanding of a style or approach that works for them and the clients they deal with

The fact that the customer is overdue and that certain consequences will follow if the bills not paid effective collectors know how to do it without upsetting or losing more customers than is necessary.

To look at it the other way, we know lots of collection people who arent able to pick up the phone (or not often enough), or who cant say hard things to customers, or who, when they do say those hard things, say them in a way that upsets or loses customers (or at least upsets or loses more customers than they should).

Effective collectors know how to use and vary their collection styles based on the situation and the debtor.

They can use a mix of diffidence or confidence, humor or charm, bluntness or subtlety or empathy or whatever is required,

This ability allows them to talk to overdue customers and say the hard things that are necessary. They dont all have the same method, but they all have a way of getting the message across that works.

b. Developing your Assertiveness Tips

Courage Strategies Confidence Strategies Controlling the Conversation

Strategies Believe youre in the RIGHT Control your Emotions Avoid talking over your client

Practice to make it feel NATURAL Manage your Voice Master the skill to interrupt Dont mistake aggression for Courage Overconfidence can be as bad as lack of

confidence Prepare an agenda and be clear about

your objective


2. Differentiating a Valid Excuse from a Smokescreen Debtors today are becoming quite skillful at making excuses because, you can be sure, youre not the only one calling them. The better the excuse, the longer they can prolong not paying or even escape responsibility for paying. The only way to get past the excuses and move on to arranging payment is to prepare yourself for whatever excuses you may encounter. Dont let an excuse catch you by surprise. Be prepared to find a solution to any excuse.

1. Analyzing Common Debtor Excuses you Encounter

Excuse Was the excuse justified or not? How did you handle it?


a. What is a Customer Excuse or Smoke Screen? An excuse is a debtors expression of resistance to paying his debt. A smoke screen is a form of an excuse that a customer uses to cover up the real reason for not paying. Either the customer is truly not interested in paying and is trying to put you off, or they really are interested to pay but for some reason or another are stalling, rather than coming straight out with their real problem.

b. Why the need to differentiate between the two?

1) If you fail to identify whether an excuse is real or a smoke screen you might go around in circles and still fail to get the payment

2) If you deal with a smoke screen as though it were real, the customer will be ready with another smoke screen as soon as you finish addressing it!

3) If you deal with a real excuse as though it were a smoke screen meaning you take them too lightly, you could be labeled as insensitive or arrogant. When they are already negative towards you, this can defeat the purpose of negotiating with them.

3. How to detect a Smokescreen

To test whether an excuse is real or a smoke screen, there are two commonly used techniques:

1) Use suppose or what if

If the debtor says that he doesnt have the money to pay right now because he doesnt have the funds. You can say: Suppose I can work it out with my boss to give you a payment extension, then would you pay?

What if we can work out a repayment plan that allows you to pay small amounts regularly to get your debt paid, then would you pay?

If the answer is yes then it is a real reason. If answers with another excuse, then it is a smokescreen.

2) Ask an open question about the excuse, pay attention to his tone and his language for intent.


If the debtor says hes delaying payment because your service is poor You can ask: What does it mean when you say our service is poor? Would you like to elaborate so we can correct this in the future? If he answers with clear and specific details: It is a real excuse

But if he says: Basta, poor ang service ninyo! Busy ako saka ka na lang tumawag! This is a smokescreen.

Smokescreens tend to be revealed through the debtors insincere tone and language 4. Recommendations on Managing Common Customer Excuses Promise or Excuse When it happens What to do

My boss forgot to sign your check and hes now on vacation.

A common excuse, especially during the holidays, but frequently used to delay payments. The arguments given by debtors can be reversed and used to secure payment.

If you are told the boss is on holiday 1. Ask about how the salary, utilities and other expenses

could now be paid 2. Normally signed checks have been left to settle

important accounts 3. You can now put some pressure by stressing how

important paying you on time is and making her feel she will be going against the wishes of their boss by withholding payment.

Our computer is down. Normally at the beginning or end of the month when debtors have lots of expenses to pay

Find out how often these problems occur and how they generally last. If this is a genuine problem the debtor ought to be willing to pay with a manual check. If they refuse, it will become apparent they are trying to avoid payment.

We already sent the payment. Or We mailed the check already.

Anytime when the debtors need to delay payment

Ask for check number, amount, date and other details. If they have not sent payment, they wont be able to answer your questions.

We are still waiting for funds from a large customer and can only pay you when these funds are

Anytime when the debtors need to delay payment or is experiencing insufficient funds

Ask the name and address of their debtor and the expected date of payment. Remind them that the late payment of their client should not affect your relationship with them.


received. We seem to have misplaced your invoice can you send another copy?

Anytime when the debtors need to delay payment or is experiencing insufficient funds

Ask whether this is the only reason for late payment and offer to fax a copy immediately. If the debtor does not agree to pay straightaway, they are admitting that their requests for copy invoices were a delaying tactic.

B. Effective Accounts Receivable Management

1. Developing and Maintaining an Effective Client Database

Accounts receivable are pesos due from customers. Receivables exist because most industries offer their customers payment terms other than cash on delivery.

Receivables constitute a use of funds. They represent money the company does not have available to reinvest in inventory, paying its obligations, etc. The existence of receivables indicates that the company, instead of collecting cash, invested cash into receivables which, in effect, are loans to customers.

If a company gives 30 day period terms, it should collect that receivable in 30 days. Anyone can sell; not everyone, however, can collect. One method of measuring the quality of receivables is to compare the actual collection period to the stated payment terms.

For example if you give NET 30, this means your invoice is to be paid within 30 days. The logical aging time periods may be 0-30 days, 31-60 days, 61-90 days, over 90 days.

Under each of the above categories, total the amount due from each of your clients. For example:

Customer Aging 0-30 31-60 61-90 Over 90

Client 1 P 75,000 Client 2 85,000 P 25,000


Client 3 P 95,000 Client 4 P 20,000 Client 5 100,000 Client 6 75,000 Total P 260,000 P 25,000 P 170,000 P 20,000

In the example, the amounts might represent one or more than one invoice. If you are using a computer based A/R program, it should have an aging report built in.

2. Classifying and Monitoring Accounts From the above schedule, you have invested P475,000 in accounts receivable. P215,000 of which is past the agreed upon payment date. This is cash that is due you that you could use to purchase raw materials, pay employees, or pay your loan payment to the bank. However, it is still tied up in A/R. You are now able to identify who among your clients are good and delinquent payers and take the necessary actions to prevent these accounts from becoming problem accounts in the future.

a. Consider holding deliveries or stop doing business with Client 4 until the outstanding debt is paid (except perhaps on a COD basis) and give your feedback or recommendation to the Sales department

b. Coordinate with clients 3 and 6 immediately to get payment and then closely monitor them and give feedback to the Sales department

c. Client 2 may also require attention, but it is possible this is a large client that has a bill payment cycle that for what ever reason seems to always be behind. The key is to investigate the reasons behind the late payment.

d. Clients 1 and 5 are good payers. Make sure that they are nurtured and protected so as to sustain the good relationships with them. You can also consider giving better deals or incentives to these clients.

Aging of account receivable identifies your problem customers, and also allows you to manage your credit policies based upon industry or company standards. If your accounts receivable conversion periods are abnormally long, you know you must work harder at collecting them. If on the other hand, your accounts receivable are abnormally short, you may be able to increase sales by easing your credit policies.

3. Tracking Delinquency Patterns and Warning Signs All businesses are prone to difficult times. Here are some signs that Collection experts identify the following as Warning Signs:

a. Frequent Unavailability of Clients or Contact Persons (for phone calls or personal visits) b. Changes in the office like less employees, work activity, furniture and equipment


c. Sudden changes in office location and key employees of the company d. Calls to stop depositing check payments due to Insufficient funds or Bouncing Checks e. Delaying Tactics when payments are due f. Complaints about Deliveries when Collection time comes g. Repeated failed promises to pay h. Deliberate avoidance of Collectors

4. Tips on Preventing Accounts Receivable Problems

In addition to the standard systems you use in aging of accounts receivable, keep your eyes open for other things that could indicate a credit and collection problem:

Does the client or debtor engage in unusual price-cutting or discounting strategies?

Such practices may hinder this debtor company's ability to pay what it owes you in a timely fashion.

Is the debtor heavily indebted with you and with other companies? Are any of their company assets already pledged as collateral?

You don't want to work with a customer that is already overextended.

Does this debtor company operate in a cyclical industry or in a business sector that is prone to seasonal turns? What is the general economic climate?

When business is good you may be more willing to extend credit. When things are slow, however, you may want to be more tight-fisted in extending credit to higher-risk customers.

Finally, pay attention to the results of your research. Sometimes "no" is the right answer when it comes to extending credit, no matter how much you want the business.


C. Stating your Collection Improvement Areas

Area

Having a Problem? Root Cause

Specific Improvement Actions to be taken YES NO

Your Collection Mindset and Attitude

Your Collection Knowledge and Skills

Managing Debtor Excuses

Managing the Collection Process

Communicating with Debtors

Classifying and Monitoring Accounts

Other Areas, please specify

Date post:	07-Nov-2015
Category:	Documents
Upload:	rodrigo-g-goyal-jr
View:	20 times
Download:	0 times

Improving Your Collection Skills

Documents