Editor’s Note: 

I am Katie Keich, the Vice President of Commercial Services for the iA Institute. Twice each month, I share substantive advice for the business to business credit & collections community. 

If you want to learn more, visit www.insideARM.com/commercial and join us at our next Commercial Credit & Collections Strategy workshop. I will personally teach you how to implement and execute a credit policy that can reduce your credit losses by 1% or more. These proven methods have already saved companies millions -- without inhibiting sales growth. 

Thanks for reading.

 

Do you know when it’s time to cut bait and turn the customer over to a 3rd party agency?

Oftentimes organizations miss out on higher bad debt recoveries. The number one reason this happens is that they hold on to the debt for too long. 

If you have been following this adventure you how important payment terms are to the process. It’s important in the onboarding process to start with the end in mind: setting yourself up for success by having mutually agreed payment terms, billing cycle, right party contact information, etc. However, even if you have done that all correctly from the start, some customers, unfortunately, aren’t able to pay for one reason or another. Here’s how to know when to cut bait and give it to the professionals. 

 

Recommendations:

Don’t ignore the warning signs. Your customer isn’t paying within the agreed payment terms. Or maybe they were paying on time, but lately they have been pushing farther and farther out. 

• The customer is showing past due more often and/or farther past due than historically
• The customer hasn’t paid you in the last 45+ days
• The customer is 60+ day’s past due to their mutually agreed payment terms
• The customer made broken promises to pay
• The customer stopped taking your phone calls
• The customer’s emails are suddenly not going through or the physical mailing address is returning mail to sender

Communicating. Don’t be afraid to ask how things are going, especially if you noticed they are outside their normal payment cycle. Immediately offer alternative options instead of having to pay you the full past-due amount today. Set the expectation that it’s vitally important that they keep the communication lines open. If they have something come up, they need to call you. And always answer your calls. You have to be blunt and purposeful in your approach here so they understand the commitment to you. 

Alternative Options. While it’s so important that the customer is taking your calls, it’s equally important to give them attainable goals. If the customer feels that they have options, they are more likely to keep the lines of communication open. Alternative options might include things like offering the ability for the customer to make a small weekly payment towards the balance.

 Offer the ability for the customer to continue doing business with you while making payments. The best way to accomplish this is to set the expectation they must remain current on the new invoices. Make the weekly payments smaller so they are able to keep to the commitment. 

A customer can always call you and make additional payments. However, it's most important that they are sticking to their original commitment. Ask the customer what is the dollar amount they can afford to make weekly (hopefully automatically)? If the dollar amount is less than their normal spend, this is a sign that they can’t stay active as a customer right now. Give them an option to use alternative vendors until they can cover their average invoices plus the delinquent amount. 

I’m sure Sales aren’t going to be the biggest fan of that message but they will thank you in the long run. Especially if they have chargebacks or are commissioned on collected revenue. Lastly, customers appreciate that you recognize and don’t want to see them get to a place of debt they can't repay. The snowball effect of continuing to let a customer who can’t pay continue billing can be detrimental. 

No one wins, if the customer files bankruptcy or worse yet goes out of business.

Recommended exercise, look at your customers that haven’t made a payment to you in the last 45 days. These should be a top priority for collections. 

Make your goal to be first in line not last. Don’t miss out on collecting because you waited too long to send an account. 

How fast are you making this decision today? Do you have an easy process for your collector to recognize it’s time to cut bait? Are the collectors being trained to recognize the warning signs and make quicker decisions? Don’t let your customers get into the 90 and 120-day buckets. They should already be with your third party agency at that point. That is if you want an opportunity to recover that debt and fast. If you are using the steps outlined above, you should be seeing higher recoveries. 

If you need help finding a good 3rd-party collections agency, or you have questions on the performance of your existing partner, let me know. I’d be glad to recommend some great alternatives. 

I hope you see purposeful decision-making throughout the steps mentioned above. If not, feel free to reach out to me via email at keich@theiainstitute.com. I would love to hear your thoughts. Even better, #chimein on my personal LinkedIn page where this article will be shared and published for open comments.

I look forward to seeing you at our upcoming strategy workshop this December in Scottsdale, Arizona, and helping your organization maximize revenue without increasing your bad debt!