For many people, just behind their fear of public speaking is their disdain for having to collect money owed. For salespeople who work on commission, few things can wreck a day faster than a note from the accounting department requesting an update on a past due account. They don’t like the idea of working for free, yet many are afraid of upsetting their client by asking for a status report on an open invoice. If they’re too aggressive in their collections efforts, they risk jeopardizing a relationship they’ve worked hard to cultivate. If they’re too passive, they risk hearing an endless string of promises or excuses, while oftentimes orders continue to be processed and the amount owed gets even larger. So, fingers are crossed in the hope that today (or soon) a check will appear in the mail and all will once again be right with the world.
The bottom line is that if we’re going to maintain OUR bottom line, we need a collections process that is both customer focused and based on sound business practices. Otherwise, we risk alienating our customers by being too aggressive in our collections efforts or going out of business because we can’t pay our bills.
So how do we create this magical blend of carrot and stick?
Following are 10 principles of an Effective Collections Policy:
- Publish a written policy that clearly states payment expectations. Net 30 days is standard for most businesses but this can vary widely from company to company and industry to industry. Many companies require payment in advance for first-time and sometimes even established customers, while advertising agencies are usually offered extensions due the additional time required to process invoices, proof of performance etc.
- Make sure everyone in the organization who deals with clients or money is fully trained in the letter and spirit of the policy.
- Make sure commission is a significant portion of salespeople’s overall compensation plans, and that commissions are based on collections, not sales.
- Collection efforts should be an ongoing part of the company-client relationship, and not limited to situations where conflict may arise. Based on the terms of your company’s policy, you want regularly scheduled “touches” to confirm invoices and any other required documentation have been received and are in the process of being paid. You don’t want to wait until a bill is past due to find paperwork was never received or was incomplete/incorrect.
- Conversations regarding collections issues should be friendly and businesslike. People don’t need to be mean to be effective. In fact, in my experience the more you can remove emotion from the conversation the more effective your collections efforts will be.
- Conversely, allowing friendship to cloud or delay conversations regarding collections can be highly detrimental to achieving a successful outcome. We all want friendly relationships in business, but it must always be clearly understood that adhering to sound business principles is the basis upon which the relationship is built.
- Management must ensure that the collections policy is consistently enforced. Exceptions based on a specific client’s business model, credit history, references, etc. are fine, but every effort must be made to keep everyone on the same page so everyone knows why an exception was or was not granted. If the belief within the organization is that a policy may or may not be enforced, there is in effect no policy at all.
- Reinforce to new and existing clients that prompt payment is both appreciated and expected.
- If ongoing, don’t be afraid to suspend a client’s order until the past due portion is paid in full. If the client is having trouble paying a previous invoice, allowing them to dig an even deeper hole may not be doing the company or the client any good.
- If we believe that “we get what we reward” offering a discount for prepayment can in some cases be an effective tool in managing receivables.
