Effective Communications for Collecting Delinquent Receivables
Dunning for Dollars Requires Specialized Communication Skills
Finding the time and resources to accomplish all the collection activities required to do a good job is a constant challenge. Most small companies come up short because when there isn’t a dedicated employee responsible for credit and collections, the owner or CFO have more important things to do. Even when another person has been assigned collection responsibilities, they may also have other responsibilities that get in the way. Achieving good collection results involves maximizing both the efficiency and the impact of the collection activities performed.
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Dunning messages are transmitted today in two basic modes: a phone call or an e-mail — though text message usage is growing. There are obvious differences between verbal and written communications, but also similarities. Let’s explore both dunning modes and how you can achieve greater collection effectiveness.
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Advantages/Disadvantages of Phone Calls & E-mails
Phone calls are the most effective as long as you get through to the proper person. They create a sense of immediacy about the issue and can be done very efficiently. The drawback is engaging the right person in a discussion. Calls are easy to avoid. It may require several calls to reach the right party, so don’t be afraid to leave a concise voicemail message and follow up with an email in case they don’t check messages.
Similarly, e-mails are easily avoided (just hit delete). However, many Accounts Payable (AP) staffers prefer emails because they can address them as their schedule permits and avoid a productivity-decreasing interruption. Also, e-mails can provide more complete account information and can often be generated automatically in high volumes, especially if you have collection software with an email component. Dunning emails are a proven way to increase efficiency and ensure full coverage of your accounts receivable (AR) portfolio coverage.
Collection inquiries can also be made on customers’ vendor portals — this is similar to sending an e-mail, but in theory it should get addressed, by your customer’s AP staff, more comprehensively and faster than if you had sent an e-mail.
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Only paid subscribers may continue reading to learn 5 communication fundamentals for collecting past due balances and 6 best practices that will help drive efficiency in your collection process.
The Fundamentals of Collection Communications
1. Be Concise
Regardless of the mode of communication, the central message should be expressed clearly. For example: “Your invoice is past due and must be paid immediately before new orders will be shipped. Please advise when we can expect your payment and the amount.” Don’t elongate or obscure this core message. It informs the customer of an unsatisfactory situation along with a call to action to rectify it. It is simple, straightforward, efficient, and effective.
If you send an email or text you can attach a copy of their account statement and/or invoice ccopies. On a phone call, you should summarize all amounts past due, such as “you owe $10,000 that is over 30 days past due” or reference one or two large past due invoices (number, amount and due date), but no more. Your opening message must be concise. Later on you can go over the details.
2. Don’t Provide Them with an Out
On a collection call, after asking when you will be paid, stop and wait for a reply. This creates an uncomfortable silence, but stick with it. It’s much more uncomfortable for the customer who owes you money. Don’t let them off the hook or divert their attention by saying anything else. This silence is one of the most effective techniques for securing a commitment to pay.
When sending emails, and especially follow-up e-mails, always emphasize the past due balance and focus on the central message: you expect them to immediately pay all balances due. Though you may accept less, you want to get the point across that letting invoicees go past due is not acceptable.
#3. Don’t Accept Excuses
More often than not, instead of a promise to pay, you will get an excuse. Good collectors are expert at deflecting excuses. Here’s some examples of common excuses and effective responses:
4. Stay On Message
In any dialogue (written or verbal), it’s critical you stay on message. Don’t get diverted into ancillary issues until the collection issue is resolved. Ancillary issues can be inquiries over unapplied cash (unless it pertains to one of the past due invoices), open debits, miscellaneous credits, complaints about service, etc. The key issue is securing a commitment to pay the past due invoices, before you address secondary issues. You might say, “I’ll be glad to look into that with you as soon as we finish clearing up your past due balance.”
In addition, don’t get sucked into a prolonged discussion about business conditions or the problems the customer is facing, unless they appear to be indicators of default or business failure. These are all distractions to the main objective and they reduce the efficiency of your limited collection effort. Customer service issues should be passed along to customer service, but before you do that, don’t hesitate to revert to the core question (when and how much will you pay?) to regain control of the dialogue.
5. Escalate Each Next Step
The intensity of your communications should increase with each subsequent outreach. If a polite request for payment goes unanswered, your next request needs to be tougher. If there is no response to your emails, make a phone call. If the AP clerk, won’t help you, talk to the controller. Keep upping the pressure until you are paid. If you are not making progress on your own, there comes a time when you should escalate the matter to a collection agency or attorney. For more about when to use a collection agency, check out this post: Calling in the AR Cavalry.
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Additional Best Practices for Collection Communications
Up to now we have been discussing the keys to messaging effectively in a collection environment. There are also other best practices you should follow that will benefit your underlying collection process.
Identify and maintain a listing of the AP (or accounting) contact at each customer as well as their supervisors, including e-mail addresses and phone numbers. When helping firms install collection software, we often found this information was not stored in one place. Typically, only some information was in the ERP/Accounting system, while other contact details were in the credit file or on a Roladex. Complete contact information needs to be in one place so anybody needing it can quickly find it.
Automate the production and delivery of collection e-mails. No matter what IT systems you are using today, this is fairly easily done. As your number of customers increases, this automated dunning capability will generate even more collections productivity.
Develop a Collection Prioritization Methodology that fits your business. Contact those accounts first that will deliver the most benefit to your firm. Those are typically the customers owing the most as well as your most important customers — you don’t want collections to become a problem with the latter. Here’s another post about setting collection priorities.
Train any employees performing Collections how to communicate effectively. You don’t want to drop a dozen past due accounts on an accounting clerk’s desk and say “please, collect these balances this week.” It may seem a simple task, but most of the time unexpected issues arise during the collection process. Consequently, a little preparation in the form of training goes a long way.
Document brief scripts for your employees performing Collections that they can use when making collection calls. These will help anybody doing collections to be concise in their initial ask. Your scripts should also include a list of excuses and responses so they can keep the pressure on.
Develop an Escalation Protocol that increases the strength and frequency of each subsequent collection action. By following a progressive collection strategy in conjunction with an effective prioritization scheme, you should be able to enjoy comprehensive and effective collection coverage.
Final Thoughts . . .
There’s never enough time to make all the needed collection calls and send all the dunning notices, all at the most appropriate times. There is always a little bit of the sense of playing catch-up when you are dealing with collections — but after all, catching-up is what collections is all about.
Past due balances are, hopefully, an exception to the norm and therefore require an immediate as possible reaction. The reaction is your collection efforts. If you know how to communicate effectively as a collector, and have defined the parameters for accomplishing your collection responsibilities, you will find success and prevent customer delinquencies from getting out of hand.