Fifty Ways to Accelerate Cash Inflows

By Michael Dennis
Source: www.coveringcredit.com

• Eliminate grace periods before calling customers to ask about the status of a past due balance.

• Be sure to establish goals and expectations for every collection call.

• Speak to the right person at the debtor company. Speak to decision makers, not message takers

• Leave fewer voice mail messages. Call back later, rather than leave a message with little hope that you will get a return call.

• Take the time to confirm payment commitments at the end of each collection call.

• Ask for a better commitment, unless your customer agrees to pay the past due balance in full

• Address the current problem the fact that the account is past due, as well as chronic problem the fact that the customer is not paying quickly enough.

• Do not allow a collection call to be sidetracked with irrelevant issues, or social chitchat.

• Establish a systematic way to follow up to ensure that payment commitments are kept.

• Personalize dunning notices, and avoid 'cute' payment reminders. Do not use dunning notices as a substitute for personal contact.

• Harmonize your efforts and goals with those of your employer --- meaning don't take action that your company would not approve of in an effort to get paid.

• When an account is on credit hold, make certain there is no way that orders can bypass credit hold “accidentally” and get released.

• Establish specific collection targets for every collector, including the number of calls to be made and the reduction in delinquencies that you expect to see by a specific date.

• Target problem accounts for special attention. When necessary, put your most experienced collector on your toughest accounts.

• Expect to be paid in full every time you call a customer. If you expect less, you will usually get it.

• Use credit holds as a business tool whenever necessary, consistent with your company's policies about when, why and how credit limits are to be used.

• Document deductions by reason code to track trends and address internal problems more quickly, and establish a dollar threshold below which customer deductions are written off --- recognizing that under a certain dollar amount it will cost more to research a deduction than it will simply to write it off.

• Require customers to provide supporting documentation for deductions taken in a timely manner. If they refuse to do so, consider a credit hold.

• Recognize that customers allocate cash to and among its creditors... so find a way for your account to be one of the accounts that is given a payment priority.

• Keep your commitments to customers, as well as your threats. If you threaten to hold orders, or to place an account for collection but do not follow through, you will have lost credibility as a collector in the eyes of that customer.

• Think of a customer's failure to make a payment commitment as a warning to update the file, and an invitation to call them and ask why you were not paid as agreed.

• Always assume a customer's first payment offer is their worst offer, and act or react according. Keep talking until you either get the commitment you expect, or you are convinced the customer cannot do better than what they have proposed.

• Establish personal collection goals, for example: A collector’s goal might be to complete 20 collection calls before lunch. Hint: Completing a call is not the same as calling and leaving a voice mail message. Completing a call means talking to someone and discussing the status of the account.

• If your company offers cash discounts, encourage customers to take them as a way to reduce DSO, and accelerate your cash inflows for your company.

• Reduce the customer’s credit limit or shorten the payment terms when you are concerned about a customer's financial status, or when a customer has demonstrated that they are unable to pay you [or other trade creditors] in a reasonable amount of time.

• Do not accept an extended payment plan you would have trouble explaining to senior management. Never make snap decisions about a customer’s payment proposal. Always make a counter offer --- you never know when you might be successful.

• Systematically remind customers who do not remit to your lockbox to do so, and follow up until they do. Recognize that some customers that do not remit to the correct address do so because they know sending payments elsewhere will increase the "float" on their checks.

• Ask seriously delinquent customers [or customers that have already broken one or more payment commitments] to send payment by overnight delivery, even if you have to pay the cost.

• Assign more experienced personnel to larger or more difficult accounts.

• Encourage collectors to promptly report (rather than cover up) collection problems to their supervisor. The sooner management is aware of a problem; the faster it can be resolved.

• Look for ways to more effectively evaluate and determine credit risk before orders are approved and released.

• If your company offers cash discounts as an incentive for early payment, charge back unearned cash discounts. If you do not, the problem of unearned discounts will continue to grow and your discount terms will become meaningless.

• Consider partial debt forgiveness as a collection tool. Specifically, offer a seriously delinquent customer a discount for example 10% in return for an immediate payment and as an alternative to placing the account for collection. The cost of doing so is far less than what a collection agency would charge as their contingent collection fee.

• Make more collection calls... but continue to place a premium on the quality of the calls rather than the quantity of the calls.

• Maintain the initiative by making collection calls [when you have all of the relevant information at your fingertips] rather than leaving messages and hoping the customer will return your call.

• Work with order entry and/or your sales department to be sure someone is carefully reviewing customers' purchase orders for incorrect pricing, or unacceptable terms and conditions of sale. When a problem is found, the order should not be entered until the customer sends a written amendment to their original purchase order.

• Be sure your credit application contains a personal guarantee. It can be used as leverage if/when collections become a problem.

• Make sure that your company’s invoices, monthly statements, dunning notices and other correspondence list your terms of sale.

• Always use the telephone as the primary collection tool. Letters and dunning notices are fine, but a collection call is much more difficult to dismiss or ignore.

• Make sure conversations with delinquent customers are interactive...allow angry customers to speak without interruption, and ask open ended questions when you are trying to find out why a past due balance has not been paid and when it will be paid.

• Deliver any documentation required by a customer to them by fax--even if it is voluminous. Doing so sends a message that it is important to you to get the documentation they need to pay you in their hands as quickly as possible.

• Don't ask if a past due balance has been scheduled for payment--ask instead if the payment has been mailed.

• Prioritize your collections calls. Don't start at A and end at Z... consider calling customers in descending dollar amount.

• Don't allow yourself to be easily put off by a customer. Persistence pays. For example, if a customer asks if they can call you back, ask instead if they can put you on hold.

• Become progressively more assertive the further past due an account becomes. Don't be shy about bypassing accounts payable and speaking to senior managers in the debtor company as the debt becomes more seriously delinquent.

• Negotiate only with decision makers. When in doubt, ask if the person you are speaking to has full authority to make and keep a specific payment commitment. If not, get the name of the person who can and speak to them.

• Monitor customer's payment patterns, and when payments begin to stretch out--contact the customer, explain the problem and ask for a commitment that the problem will be addressed and resolved quickly.

• If the debtor will not accept your calls or return your calls, consider asking the salesperson [who presumably has a good working relationship with the customer] to arrange for someone to call you to discuss the problem before it becomes even more serious.

• Recognize that while it is unreasonable to expect a customer to pay a disputed balance, it is also unreasonable for customers not to pay the undisputed portion of the past due balance.

• Recognize that customers have a vested interest in remaining off credit hold. Open account sales are mutually beneficial to buyer and seller. This means that relationships are and should remain mutually beneficial. If your company provided the product ordered at the price negotiated, you deserve to be paid within the terms agreed upon.

This information is excerpted from a program we conduct to help clients to maximize cash inflows, while controlling credit risk. The goal of this program is to make the credit and collection function more efficient without the need to increase staff or purchase expensive software upgrades. Our goal is to accelerate cash inflows while doing as little damage as possible to the client's business relationships with its existing customers.