Business debt collection is not rocket science. It does involve a consistent commitment to a regular process. Many small business owners spend a good deal of time trying to get the lowest rate from their collection agency. Others will do nothing to collect on their own, yet will be reluctant to send it for outside collection. Both approaches are short sighted, and could sabotage bad debt recovery efforts and be disastrous for cash flow.
In the excellent play and film, Glengarry Glen Ross, the sales manager for a brokerage firm tells his that sales is as easy as ABC, that is, “Always Be Closing”. I contend that the way to get the best collection results is to ALWAYS BE COLLECTING.
Collecting is not just calling delinquent debtors on the phone. It begins with your first contact with a customer. How do you communicate your prices and how do you expect to be paid? How much information do you gather on a new customer. Do you make informed credit decisions and do you have a customer contract?
Business debt collection involves being on top of your accounts receivables at all times. You or someone you designate should be assigned with this task, and it must be a priority. This first step will drive the whole process.
Next, establish a procedure for following up on delinquent accounts. We suggest the following:
1. Compose 2 or 3 collection letters of increasing urgency. Note the word urgency – no anger or threatening. Be firm and specific. Generally, you would send letters at 30, 60 and 90 days past due, but you can set the schedule that works for you.
2. Calls to follow up with selected customers. Use someone with either a relation to the customer, or a position of authority to make the calls. Let delinquent customer know that the issue is being escalated in your organization.
3. Decide how long you are willing to wait before getting outside help. You can use the same “drop dead” date for all delinquent customers or allow a little more time for long time customers. However, it is very important to stick to the timeline once you set it.
4. Communicate the process to all in your organization. It is very important that you discontinue new sales to these customers at this time, or at very least make certain the files are marked so that any new sales requests become an opportunity to collect past due sums.
5. Hire a collection agency. While you will cut down on the files you need to send them, you must be ready to move on and refer for outside collections when the time is right. Develop a checklist to make sure you give your agency all the information they need to do their job.
6. Continuously monitor your results and adjust as necessary.
Business debt collection should be easy. However, to make it easy as “ABC”, you have to commit to it, and keep the process on track.