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Getting more timely CASH from your receivables – Part 3 – Collection calls

Jan 17Jeff Matthews

Two weeks ago this space took on the topic of timely and accurate billing to promote prompt collections.  Last week the need to manage the collection process and plan cash was addressed.  In this final installment the topic of making collection calls will be our subject.

The most important aspect of a collection call is preparation.  Know your customer, know the transactions in questions and know your boundaries.

Collection calls are a fact of life.  Keep in mind your total relationship with the customer and what leverage points each of you has in the relationship.   Do not allow yourself to be bullied, be respectful and firm about collecting past due invoices.  Each customer relationship must be handled uniquely.  Unfortunately just as there are no two identical customers, there can be no cookie cutter approach to collections.

Critical questions to ask about the customer:

  1. What do you want from this customer relationship?
  2.  Is collection of the past due items your goal or do you seek to improve the customer’s future performance?
  3. What level of business would you anticipate going forward?
  4. Do you have an open backlog with the customer?
  5.  Is the customer solo sourcing from you and do they have reasonable alternative sources?
  6. Are you the back-up supplier for this customer?
  7.  Are you only getting their business when their primary source has a dispute?
  8. Is the customer’s pricing advantageous to you?
  9. Is the customer willing to work with you on delivery and timing?
  10. Does the customer have higher or lower returns of merchandise?
  11. What other expectations does the customer impose?  Such as heavy entertainment needs?  Or unusually high demands for samples or display items?

Some customers are not worth the trouble.  Fire them and collect your money.  Small customers who do not have the potential to grow into larger customers and that require excessive hand-holding, unrealistic pricing and/or disproportionate collection efforts may not be in your best interest to retain.  Consider switching them to standard pricing and/or COD terms.

Treat all customers with the respect you expect from your suppliers, but do not allow a small customer’s demands to interfere with your firm’s ability to serve the needs of larger more profitable customers.

Keep emotions in check when collecting money.  Allowing tempers to rise will only strain the relationship.  Even when you are threatening to withhold shipments, pursue outside collection efforts or withdraw the customer’s ability to purchase on credit; do so calmly and with as little emotion as possible.  Do not allow yourself to be goaded into an emotional exchange.  One of the best ways to achieve this is to allow yourself time before making the contact to think through the customer’s side of the situation.  What does the customer need from you?  How can you help the customer save face and while still getting paid?  If you force a win-lose outcome, be prepared to lose the customer.

Hopefully you will have determined if the customer was dissatisfied with the product or service prior to making a collection contact, but be prepared with facts about the transaction in question so you are not on the defensive.  If your organization did fail in some aspect of the transaction, you should have thought through what concessions, if any, you are willing to offer.

Be firm but not overpowering.  Make it clear to the customer what your payment expectations are and put them in the context of the customer’s expectations for quality, timeliness and price.   You may receive immediate payment, but if not you should have thought through what you will accept as an alternative.  Pre-define your boundaries and hold your ground.

Finally, seek the counsel of experts.  Develop a relationship with an attorney who knows your industry and has a background assisting with collection problems.  If you have to turn over the customer relationship for collection efforts, know that you are firing the customer.   You can facilitate outside support by properly documenting your efforts and providing copies of all transaction documents and correspondence to your attorney.  If you make notes on your collection efforts, that will jump start the attorney’s work.  These folks don’t come cheap nor should they.

A well executed meeting with a customer who has payment issues can easily be turned into an opportunity to grow the relationship if you can come to a mutually acceptable agreement on the terms of future business and the settlement of open transactions.  Look for opportunities to build a stronger relationship with the customer.

Tribute:  Much of my collection knowledge comes from a former employer, Steve Hill.  As a small business owner, Steve taught himself how to collect by making hard decisions and a few mistakes.  I want to acknowledge his contribution and my appreciation for the training he provided.

B2B CFO®

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