Before the covid-19 interruption, we were talking about sales systems. Even if you have brilliant sales, they are not completed until the money's collected. Again there are many systems that contribute to this. For example, are the terms of sale meaningfully engaged with from the start? Is debt followed up each and every time (including possibly a pre-due date reminder)? Are customers' payment records included in the customer rating (and pricing)?
In this article, we cover the process after the due date. It is imperative that you don't allow things to slide at this stage. We'll discuss three simple techniques to bring that money in:
- Emailing (or writing) to your customers
- Calling your customers
- Incentivising your team
We go into more detail on each of these - but remember it's not just a matter of copying and pasting. Hopefully, you enjoy most of your business, but debt collection is hardly most people's idea of fun. To remove the pain this has to reflect your style and values. Examples are just to promote your thinking of your own approach.
Emails / letters
Most debtor letters are negative and threatening. Conversely, they don't usually thank customers for payment. Customers are alienated, become resentful and less likely to pay quickly, and even less likely to purchase again.
Everyone has owed money at some time. Perhaps they forgot to pay or were simply too busy. Or they may have had some trouble meeting it. But it's rare for someone not to pay on purpose. (People like that tend not to stay in business long.) So we are punishing the majority for a troublesome minority.
First a typical threatening letter:
It has come to our attention that your account is outstanding. The overdue amount is: $56.54
Please correct this situation immediately by paying the money into our account today or visiting our premises.
If your arrears fail to be received within the next 14 days, you will leave us no choice but to seek legal action. Of which you will be liable for this amount and all court costs.
Legal action will be taken if the amount of $56.54 is not paid.
In the meantime, we appreciate your business and if you have already paid this account, please disregard this letter.
Second a typical complaining letter:
We refer to your outstanding account with our firm. As you no doubt aware, the amount charged to you is our selling price. While we do not provide any goods or materials, we do have a very large infrastructure that must be financed. Not the least of these is our commitment not only to keep up-to-date with legislative changes but also to keep touch with the current best business practices.
In order that we can provide you with better services, our cash flow is of prime importance. We would, therefore, ask you to make payment as soon as possible.
If you have some complaint about our services or are experiencing cash flow problems, please call to discuss the matter. I’m sure any problems could be solved to our mutual advantage. If you are having cash flow problems, perhaps we can help you to plan your business objectives and review your business practices. This could well solve both our problems.
People pay people they like. The purpose of any debtor letter is to retrieve your money in full. Therefore your message must make your client feel good - not uncomfortable - and should build empathy for you.
Here are a couple of examples
Good morning, Mark,
You know, bank managers can be such pains in the butt! They do, though, have one very important function—they remind me occasionally that I’m running them out of business by competing with them.
Look here Phil,” they say, “we’re the ones who lend money, NOT you. And you don’t charge any interest either.”
You see, Mark, I’ve effectively loaned you $1,200. The $1,200 you’ve owed us since May 5.
Now, you might feel a little uncomfortable about that, so acting on this letter may well help you feel a little better.
All you have to do is direct credit $1,200. I’d really appreciate it if you could do that right now or please call me so that we can find a solution to the problem.
Thanks in advance for taking some action, Mark, and for doing it quickly. That way we can both keep our paperwork piles down.
Keep at it…
Good morning, Marie,
You know, I’ve tried 47 different ways of starting this letter to you. And then, it finally hit me. All I had to do was say HELP!
All I had to do was explain that I had a problem and needed your help. I figured you’d want to know exactly how you could help.
You see, someone in your organisation currently has an account they’re “sitting on” for $2,900. Sure, it’s not taking up any space, but it can be annoying to have paperwork piling up.
So, you can reduce that pile and help three people at the same time.
First, you’ll help me. Second, my bank manager will change his scowl into a smile. And most importantly, you’ll help yourself by getting rid of something that might just sit there like a thorn in your side.
Thank you in advance, Marie, for taking action on it now. I really do appreciate your help. Keep at it and keep on enjoying good things.
PS If for some reason you can’t act NOW, I understand. But please do call me so that we can find a good solution.
The idea behind these letters is that they’re ‘friendly.’ And people don’t like owing their friends money. And most don’t like to think they’re making someone feel bad. Also, you’ll agree these letters are different. They certainly stand out from the rest of the debtor letters your customer may have ever received. Because of that, you can be sure they’ll be read. Your customer will understand your position better while relating to your message, instead of being offended by it. Many will get the ‘guilts’ and feel compelled to do something!
Calling to collect
Creating a debt collection system and using the phone to collect your money involves increasing the "gradient" - becoming more and more proactive, with a view to collecting before it gets "serious". The initial call should be designed to offer a friendly reminder - a service more than anything else.
Simply get on the phone to your customer. This phone call could go something like this:
‘Hello Marie, this is Phil from ABC and I’m calling for two purposes. First, I wanted to make sure everything is OK with your [product or service] and that you’re happy with everything we did for you.’
Let them respond. Most will say: ‘Oh yes, everything’s fine thank you.’ You can then go on to say:
‘That’s great. I’m glad to hear it all went well. Marie, there is one thing I need to remind you about. We haven’t received your payment for your product (or service) yet [pause], and I was wondering if we could take care of that right away then?’
Many people will be surprised, or apologise, or make excuses. At this point, you can go on to say:
‘Oh OK, well it would be best if we could take care of that now. What would be the best way for you—credit card or a bank credit, say by the end of the week?’
This, in a friendly way, gives the customer two clear options, and you can take it from there.
For those few who mention something they are or were unhappy about, acknowledge it as a legitimate comment and resolve it, if possible. After that, go on to confirm:
‘Despite that, would you say you’ve been happy with everything else?’
Most will say, ‘Oh yes, everything’s fine thank you.’
From here, depending on the severity of their unhappiness, you can either continue or let them know you will call them again to check everything has been rectified. In the latter case, be sure to mention:
‘Marie, one last thing. Your account hasn’t yet been finalised for that product (or service). Of course, I’ll take care of this for you first, but you’d appreciate that we will need to take care of this account then. I’ll talk with you again shortly and make sure this is made perfect for you. Bye for now.’
This next phone call gets a little firmer about the outcome. Here's find an example:
‘Hello Marie, this is Phil.
Here you will engage in rapport-building conversation.
The reason for my call is to check that your payment for the [product or service] hasn’t gone astray.
I’ve just been speaking with Nicky in our accounts team, who brought it to my attention that we don’t seem to have any record of receiving your payment.
Don’t pause at this point.
And Marie, I just wanted to determine whether your payment has gone astray at this end, or perhaps it has been overlooked by your accounts team.
Can you shed any light on the subject?
If the payment has been overlooked…
So Marie, there are a couple of ways you could fix that with us now. The quickest way to sort it out would be to pay with a credit card. Is there any particular card you prefer to use?
If “no” to use of a credit card…
Then Marie, why don’t I email you a copy of the invoice so that you can have your accounts team process that for us?
Wait for a response.
Great. I’ll email that today. That way, we can anticipate receiving your payment by when?
Agree on a specific date.
Thanks for your help with that, Marie. I really appreciate it and look forward to finalising this.’
You’ll notice that it gets straight to the point in a very nonthreatening way. But it does get to the point.
You’ll also see that it creates action. You now have a direction or end point that you can work toward so that you can mark when your next follow-up should occur.
A way to make this even more powerful is to send a ‘Just wanted to say’ email that reinforces the end point, which is the specific date you can expect to receive your client’s payment.
For significant debts especially, it is better that you personally make these follow-up phone calls. The message is strongest and people tend to feel more beholden to you.
The next step from here would be a combination of a letter and another debtor follow-up call.
In this instance, you take the control away from the debtor. You write to explain that they need to pay the account, and you tell them that you’ll be calling in the next couple of days to follow up the letter and to determine when your accounts people can expect the payment.
You’ve clearly defined what will happen and what you expect. This way you’re in control from the time you send out the letter until the money is in your pocket. The script and the letters should follow a format similar to the examples you’ve read here.
From here, if you haven’t had a response and received payment, stay in touch. Call constantly. The old theory of ‘the squeaky wheel’ rings true here. People pay bills by prioritising their creditors and their cash flow.
If you’re determined and constantly in touch, many will often pay you first just to get you out of the way!
Sometimes people aren't naturally invested in debt collection. This can be particularly tricky when salespeople are always keen to sell but aren't invested in seeing the debt collected. Offering a reward makes it personal and focusses the entire team.
Empower your team to make deals, such as payment schemes.
Offer them an incentive or profit share. Debt collectors usually take 20% of what is returned. Your team will do it more efficiently (and with less damage to the client relationship) perhaps for the opportunity to win a day-off.
This leverages your time, puts more people on the job and creates an expectation of faster results.
These are three tips to help you with one of the less pleasant tasks people in business face. Of course, they all assume you have sensible terms of sale in place and clients have accepted them, either in writing or at the point of sale.