Credit & Collections: Polishing Your Best Practices in the New Economic Era

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There's no time like the present to evaluate areas of credit and collections that need attention. It will give you a chance to reestablish best practices if they have gone awry.

While many of them are classic in nature, there are some new optimal procedures that have developed over the last two years that will minimize your organization's ongoing COVID-related challenges while maximizing profits.

Before I get into some of the newer learnings, here are some perennial practices that are critical.

For new customers, determine creditworthiness. Analyzing a customer's ability to pay up front could save you time and money by minimizing or eliminating collection efforts and costs later. Offer payment terms commensurate with a customer's abilities. For marginal customers, consider payment in advance or partial cash in advance with the balance due within 30 days.

Prioritize your collection efforts. New customers and high-stakes customers should be at the top of your action list. The former need to know at the outset of your relationship that you will enforce your policies. The latter need to stay current because you have too much to lose if they do not. Slow pays should be your third priority. Those with an established pattern of paying late this past year will likely continue to pay late if allowed the luxury.

Enforce your terms of payment. Start the collection process when the account falls 15 days past due. Follow up at least once a week, starting with the larger accounts that owe greater amounts. Communicate directly with the decision-maker. You never want to let a customer think that an extra week or two makes hardly any difference to you.

As outlined in your company's policies and procedures, be prepared to revoke credit privileges on overdue accounts at 60 days past due (typically), and then enlist third-party help when the accounts are 90 to 120 days past due.

Pick up the phone. It is still the collector's best friend and short of a face-to-face meeting, the best tool for relating effectively with the customer. Clearly state your reason for calling and request prompt payment. Suggest solutions if you suspect your customer is having difficulty making payment. Consider enlisting the help of the account's sales rep, either for the first try or after your first try meets with resistance. Stay positive and polite, no matter what happens.

Send effective written communications. After that telephone call, a follow-up letter (via mail, fax or email) is critical to your confirmation process.

The first-reminder letter should have a mild and non-accusatory tone and should offer the suggestion that the nonpayment is probably the result of an oversight. Future communications should reflect growing concern and should include a positively phrased benefit statement to motivate the debtor to pay. ("Payment of the invoice by the 10th will ensure your continued favorable credit standing.")

The final-demand/other-action letter contains your final request plus a statement of your next action if you are not paid. "Other action" usually means referring the account to a third-party collector. In any case, collection letters should always comply with federal and state legislation.

Your organization can develop its own form letters, with two or three customizable variations of each message. Send your request-for-payment letter on company stationery to convey a professional image. You might also develop guidelines to help collectors personalize the letters without changing the message or impact.

Explain how you wish your customer to render payment, such as a link to a secure online payment portal. Offer to answer any questions about the payment and include your direct phone number.

Make it easy for the customer to pay. This may seem like common sense, but it is an element that is often overlooked. Make sure invoices are sent on a regularly scheduled basis and that they include all necessary information. Include your payment terms and any past due interest charged on the invoice itself.

Invoices should include a due date, or state a range, such as "due in 21 days." Avoid jargon such as net 15 or net 30. Some customers may understand that means within 15 or 30 days, respectively, but not all.

Can customers easily pay online with ACH, credit cards, PayPal, wire transfer or other automated payment options? Electronic payments take any "it must be lost in the mail" claims out of play and give your customers immediate confirmation that their payment was received.

Document all communications. Follow up every telephone or video conferencing conversation with an email summarizing the discussion and attach any invoices in question, along with copies of any contracts and your terms of payment. This record-keeping is vital down the road if you end up in court with a delinquent customer.

Team up with sales. Make sure salespeople clearly explain your payment terms at the time of sale on new accounts. Consider asking the sales rep to help collect a delinquent account. If they have a friendly relationship with a customer, that customer may be more forthcoming and receptive. Notify salespeople when their accounts become delinquent and again when they become current.

Give established customers a break. Even your best customer may have trouble paying occasionally. Everyone wins when your customer weathers a short-term difficulty and gets back in the black. In fact, some customers might reward your loyalty by buying more when their business picks up. Do not alter your payment terms but be willing to allow a temporary grace period or spread the amount due into multiple payments.

Know when to reach out to a third-party collector. Engage the services of a collection service at 90 days past due or less in more perishable circumstances and 120 days for less perishable. If there is a dispute or denial of liability, provide your collection service with complete information.

Centralize all pertinent documents into a single file. Do not engage in any collection activity once the account is placed and notify the collector of any payments received by the customer as well as any conversations the customer had with anyone in your company.

Lessons Learned

In addition to illness and death, the pandemic brought business closures – temporary and permanent – labor shortages, and material shortages, along with the difficulties of managing remote working teams. Thankfully, many lessons have been learned that can help us sidestep some obstacles in the future. Here are suggestions.

Establish back-to-office protocols. Even with video conferencing, not all job functions can – or should – be done remotely. However, returning to the office can be difficult. The safety and well-being of your staff is paramount so follow the guidelines of the Centers for Disease Control and Prevention as well as your local government to make sure your workplace conforms.

Inform returning workers in advance of any vaccination, testing and in-office behaviors they are expected to follow. Additionally, post signage as reminders and to notify visitors of your protocols.

Address staff attrition and well-being. All economic indicators show that the labor shortage is expected to continue. Many businesses are struggling to find qualified applicants or are offering higher salaries and hiring bonuses to their best candidates.

Retaining talent needs to be a priority. It's perhaps even more important than recruiting the right new employees. Incentives such as pay raises, bonuses, work-at-home days and other perks can help keep your fully trained team members enthusiastic and on the job. Of equal importance is acknowledgment of the personal challenges caused by working from home and/or reduced personnel.

Video conference often with remote staff. By now, most professionals have gotten pretty Zoom-savvy. We all (well, most of us) have learned how to create tropical-themed backgrounds; view our co-workers as if they are sitting together in a movie theater; and hit that mute button just as a pet or a child barks or cries.

While it may be a preferred means of corporate communication, collaboration is not as easy as it is when sitting around a conference table or batting ideas back and forth in the break room. Regularly scheduled online team meetings are vital to keep everyone involved and invested.

The Known and Unknown

The private and government partnership to fight the pandemic has been nothing short of monumental. As we know, however, we are not out of the woods yet with mutations of the virus continuing.

There is also a very large elephant in the room. Inflation could prevent central banks and governments from once again showering economies with stimulus money if additional lockdowns ensue. Additionally, shutdowns could exacerbate our already significant supply chain problems, further boosting inflation.

However, among the many heartaches and challenges of the past two years, there have been many bright spots as well. Perhaps the most noteworthy has been the resilience of the American spirit. The courage of our essential workers in the face of physical danger, the creativity of business owners in the face of possible failure and, most importantly, our faith that the country will prevail, as it always has, in the face of hardship and difficulty. This spirit should carry us well into the future with hope and optimism.

This article was originally published in the Mar/Apr issue of TFM.

C. Robin Szabo is president of Szabo Associates Inc., media collection professionals, in Atlanta, GA. He can be contacted atrobin@szabo.comor (404) 266-2464.

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