Jazzing up your debt collection process
Collecting money is often uncomfortable. It’s often a problem that you wish you could give to someone else to handle because it’s just too stressful. But it doesn’t have to be that way. Instead of considering this situation a problem, consider it an opportunity—an opportunity to get paid and connect again with your clients.
It’s important to create a debt collection system. At each point in the collection process, the action you take moves up in gradient. That is, it gets more and more proactive on your part. Such a system must be created with a view of having people move out of that system—having paid their debt—before you take the most serious steps, such as legal action.
Here are some steps you can take to make debt collecting more effective and more enjoyable!
Step One: Friendlier Invoices
A simple strategy to start the billing procedure off on the right foot would be to modify the wording of your invoices from something like “payable within seven days” (which usually is interpreted as sometime within the next month) to a more specific (yet friendly) call to action. For example, “We would appreciate your payment by September 14th.” The effect of just that alone will be amazing, because now customers have a specific date to go by.
If customers are still reluctant, follow up with a simple complimentary reminder. This can be a handwritten note attached to a copy of the invoice saying something like “just a friendly reminder that payment is now due.” And for those who are still slow to pay, it’s time to start the phone and letter process as described below starting at step three.
Step Two: Reward Your Prompt Payers
What a novel idea! Let’s reward those people who actually pay us on time! Sometimes we spend so much time and energy pursuing long-term debts that we forget about those great customers who make our lives easier. Rewarding them may not directly result in the resolution of all your debts, but it will certainly ensure that those prompt payers keep up the good work.
One suggestion is to simply send a note to say thanks for paying your account on time. Or use a sticker on their next bill that says, “Thank you, we really appreciate the way you always pay your accounts on time.” Or “Thank you for being such a good customer. We wish we had more like you.” Remember, the little things are what make profound differences in your business. Another idea is to print up a high-quality certificate of appreciation and send or hand deliver it.
You could also try an interesting approach called a Prompt Payers Club for customers who pay their bills on time. Every month members are entered into a drawing, with the winner getting profiled in your newsletter and/or winning a prize (i.e., dinner for two, a gym membership, gift certificate, etc.). A creative way to find low-cost but valuable prizes would be to look into your client base and see if any clients would like to promote their services or goods to your other clients.
Step Three: Don’t Be Afraid to Pick Up the Phone
It can be useful to call your clients, perhaps even more than once, before you write to them. Where a more formal letter would more likely have been sent in the past, these days the phone is acceptable as a means of dealing with such issues. Because most people don’t intentionally fail to pay, receiving a threatening letter can take them by surprise and make them resent you. The initial phone call should be designed to offer a friendly reminder—a service more than anything else.
Step Four: Send a Letter that Reaches Them Instead of Threatens Them
If the phone call reminder does not result in payment, you can try the written approach. Unfortunately, however, most debt collection letters are negative and threatening. Instead of encouraging payment, these sorts of letters actually alienate the recipient. People don’t like being threatened, even if they know they’re in the wrong. It makes them resentful and uncomfortable and, consequently, less likely to pay quickly or purchase from you again.
A better tactic is to reach a debtor on a person-to-person basis. People pay people they like! And the purpose of any debtor letter is to retrieve your money in full. As such, it should build empathy in your favour. Your customers will relate to your message and understand your position better, instead of being offended by it, and feel compelled to take care of the debt. Language like “Thank you in advance, [FIRST NAME], for taking action on this now. We really do appreciate your helping us meet our business obligations.” Or “If for some reason you can’t take care of this now, we understand—we have financial pressures too. But please do call us so that we can find a good solution.”
Educate and Empower Your Team Members
Usually the best way to solve a problem is to have the whole team focus in on it. It’s sometimes hard for team members to grasp the seriousness of the situation because their salaries don’t alter as the level of debt alters. So educate your team about how important it is to get paid on time and give them the systems, skills, and support they need to implement an effective debt reduction program.
Empower your team to make deals, such as payment schedules. And give them an incentive or reward. The cost to you is very little, and it really focuses your team. Once they learn about the difficulty of collecting debt, they may just be a little stricter with their controls on credit.
When you’re in charge of collecting debt, you soon work out ways of bringing the debt under control. When you look to your team to share the debt responsibility, you’ll find that, in most cases, your team will devise very effective systems for collecting payment. And this is great leverage of your time.
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