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Collecting by Type
by Abe WalkingBear Sanchez
When it comes to delinquents, there are three types of customers, two of which also have subtypes. It is necessary to understanding what "type" a customer is so that you can approach him or her with the best strategy to collect.
Type I--Slow Pay
There are two types of slow-pay customers:
- Those who are practicing "cash management" and purposely paying slow (common in large companies).
- Those who are disorganized, indifferent, or lazy (common in small companies).
While you can utilize traditional collection techniques here, an even more effective approach is to put a sales "twist" on it. Get to know customer accounts payable people personally, and develop relations as close with them as your salespeople have with customers' buyers and users. Then, keep calling until you receive payment. Be a friendly squeaky wheel.
Type II--Problems
Problems can be of two types:
- Systems. Systems problems are those that are often caused by your company. These can be shipping and billing errors, disputes, misunderstandings, quality problems, or unissued credits.
When you identify that a customer is not paying because of a Type II Systems problem, get all the facts and details from the customer. Then, arrange to solve the problem. In most cases, if you catch these problems in the early stages, they are easy to fix, and payment should be forthcoming quickly.
- Financial. There are two subgroups of Type II Financial problems:
- Type II Financial Temporary. These are customers who are experiencing short-term financial problems (seasonal business, late payments from their customers, etc.). Work with these customers. Create payment arrangements with them to help them get caught up and encourage them to continue to purchase. The last thing you want to do is send them to the competition.
- Type II Financial Serious. These are customers who are experiencing chronic (and probably permanent) financial problems, and who have a 90% chance of going under. Don't extend any more credit to these customers. Move quickly to get out, and get what you can from them before anyone one else does. If possible, try to arrange to have already shipped product returned.
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Type III--Payment Avoiders
Type III customers are those who are out to get you maybe from the start. Fortunately, they usually represent only a very small percentage of accounts.
However, it is important to move quickly once you identify them. Cut them off immediately. You want to get out with the smallest exposure possible. If you wait too long, you may end up losing $5,000 instead of $500, or $50,000 instead of $5,000.
Furthermore, don't even try to collect from Type III customers. Trying to work them yourself is almost always a waste of time. Instead, turn them over to third-party collection agencies or attorneys immediately. Then, devote your valuable collecting time to Type I and II customers.
Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.
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