Part 3 – Waiting too long to collect
I cannot tell you how many times a fellow employee has come up to me and said “You have the worst job in the company. I could never do what you do”.
Why did they say that? Because, for about thirty-two years, my job has involved calling customers to ask for money. My best guess is that I have made something like 10,000 collection calls over the course of my career. How do I feel about it? Well, I have a secret to share with you: I love my job, and I love making those calls. Does that make me a sadist, bent on tormenting poor souls who happen to owe us money? No. I just love what I do. I get a charge out of it, especially when I succeed (when I collect the money).
Most people shy away from this kind of work, I think, because of the unknown and the unease. The unknown part is simply about doing something they have not done before. The unease part is about asking for money. Most people don’t like to ask for money and are uncomfortable with it, so they choose to do other kinds of work. I think that most people equate phoning a customer to make a collection call with bothering people to solicit donations, or with panhandling. For many people, it goes against the grain. That unease, that discomfort is a big part of why so many businesses wait too long to collect the money that is owed to them. They put off making the call, which, in my opinion, is a mistake. The longer you wait for your money, the more likely it is that you will not be paid at all.
You can think about it another way: If you don’t ask, you won’t get.
Broadly speaking there are three groups of customers when it comes to collections. There are accounts where you will be paid, even if you don’t ask. There are also accounts where you will only be paid if you ask (in fact many of these accounts are waiting for you to ask before they issue payment). The third group is companies with a problem. They probably have enough cash on hand to pay some of their suppliers right now, but not all of them. Being first to call that kind of customer can, and will, get your company paid ahead of others.
Putting off the call ignores what your company has earned. If you walk up to people on the street and ask for money you are panhandling. Any money given is charity and, I think, has not been earned. If you are making a collection call, you are asking the customer to pay what they owe to your employer. This is something they agreed to do when they arranged to buy goods or services from your employer. They made a promise to pay and now you are asking them to keep it. Putting it another way, your employer, the company you work for, is entitled to that money. It is owed to them. They earned it by making a sale. When you make a collection call, you can be sure of one thing: You are not panhandling.
Now that we know we have earned the money we are calling about, the next question is, how do you make a collection call? Simple, you follow the 4 P’s of collections: Be Prepared, Be Professional, Be Punctual, Be Persistent.
Be Prepared. Your customer account set up will have included contact information for accounts payable (you got this information from the Credit application that the customer completed and signed). Call up the customer account on the screen in front of you, check the notes from previous collection calls and then use account contact information to call your customer. From the screen you can give the customer invoice numbers, amounts due, dates, etc., as they are requested.
Be Professional. If the customer asks for invoice copies, send them, but also confirm email addresses and other information used to deliver invoices. Keep your side of the call polite and calm. Do not raise your voice. Do not interrupt or talk over the customer. Do not use bad language. If the customer is angry, being patient will let them burn that anger off, and when they have finished being angry, you can continue with your call. If you are professional when you make the call, you will avoid giving the customer a distraction from the main issue, which is the money. On the other hand, if you behave badly, the call will be about your behaviour and not the money.
Be Punctual. Keep track of what the customer promises to pay and when they promise to make payment. Make notes about each call on your screen. If the payment is late or the payment is light (less money that you were expecting), call them back, and politely ask why.
Be Persistent. Keep asking until the payment you want is received.
Also, being punctual and being persistent shows that you care about being paid. If you are not punctual and persistent, the message you are sending to your customer is that you don’t care, and you if don’t care, why should they?
Pro Tip: This is an exception to the Be Persistent point above. If the past due balance reaches 30-60 days past the invoice due date, consider referring the account to an accredited 3rd Party Collection Agency. At this point, there is still a good chance that a collection agency can recover this balance. In my opinion, most collectors (me included) are inclined to hang on to unproductive accounts (customers who are not paying) for too long, and thereby miss the window when a 3rd party agency can be effective. And, yes, there should be a section covering this subject in your Credit Policy.
When should you call your customer to ask about money? Before the invoice due date, on the due date, or after the due date? The answer is all three. For some customers, such as major accounts, customers with big projects, big orders, or new customers, it may make sense to call before invoices are due. If the invoices were billed a week or two weeks ago, you can call to confirm that the customer got those invoices. If they did receive them, are the invoices in their system and approved to be paid and, if so, when? Is there any additional documentation that customer needs to have your invoices processed for payment? As you gather information from the customer, make notes about the call on your screen. This kind of call is proactive and can head off past due balances by dealing with issues like missing invoice copies, or missing documentation before a balance becomes due for payment.
How about on the due date? As a part of knowing your customer, you need to know when and how your customers pay their bills. Some customers will manage their Accounts Payable by issuing payments daily. These customers are usually larger corporations or governments. Others will pay periodically, such as weekly, biweekly (every 2 weeks), twice per month (15th and 30th, or 1st and 15th) or monthly. For these customers, it is important to know what their cut-offs are (the last day that an approved invoice can be included in the current pay cycle). For instance, in the Construction Industry, payments for specific jobs or projects are “progressed” to the project General Contractor or Project Manager several days prior to month-end and, assuming that everything is approved, payments flow to contractors and sub-contractors at or around the following month-end.
My first job in Credit required that I have a valid driver’s licence and the use of a car because I would spend 2-3 days per month driving around the city, gathering cheques from customers in the Construction Industry, and then depositing them at the bank near our office. Frequently these cheques were prepared well in advance and were released once payment had been received from the job or project.
Pro tip: Encourage your customers to use electronic payment methods as much as possible. These payment methods include Electronic Funds Transfer (EFT), Preauthorized Debit (PAD) and wire transfer, as well as other formats. Using electronic payments means that you are not waiting to receive, and then deposit, cheques from the mail or from couriers.
Most Accounts Receivable systems produce reports, including a Trial Balance Aging and Past Due reports. Both types of reporting are snapshots taken on a particular date, showing the aging of the customer accounts being managed. Many systems will have these reports available monthly and weekly, with some types of reports available to collectors on demand. Ideally, this reporting will be available in Excel format so that customer accounts can be filtered and sorted to meet the needs of each team member. Following up on accounts with past due balances starts with this reporting. Your Credit Policy should spell out which types of past due balances are the first priority for your team, then which past due balances are the second priority, and so on. With the report or reports and an understanding of the priority assigned to past due accounts, you can prepare for your calls.
In making collection calls on past due balances, you will be trying to: get the money, keep the customer (that is keep them buying from your company), and, if possible, rehabilitate the customer so that from now on, they will pay on time. (Ok, I will admin that the third thing does not happen often, but it does happen.) Remember the 4 Ps and be prepared, be professional, be punctual and be persistent. Call up the customer account on your screen and review the notes from previous calls. Contact accounts payable, advise them that your company has a past due balance and ask when the customer will be paying this balance. Be ready to provide information about the past due invoices, and to send invoice copies and other documentation, if required. Check to confirm that invoices have been prepared correctly, sent properly, and include all required information. If the customer makes a promise to pay, note the date and the amount and diarize the account for follow-up on or after the date promised.
Pro Tip: Unless you are talking to senior management or the owner, chances are that your contact is not in control of the timing of your payment. Venting at them if payment is delayed may be tempting, but will ultimately be counterproductive, in my opinion. For best collection results, in both the short term and the long term, keep your calls as friendly, as calm, and as professional as possible.
That is all there is to it. When you are collecting customer past-due balances there is nothing to be concerned about at all and no good reason to hold off on asking your customer for money they owe your employer. After all, you are not panhandling. And if you are really stuck trying to figure out customer collections, reach out to the Credit Institute of Canada; we can recommend some experienced Credit Managers to help advise you.
Coming up: Part 4 – Missing the warning signs of insolvency