Keys to Collections

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Keys to Collections

The successful collection process is much like the successful sales process. There are four steps in each:

Identify the decision maker.
Determine the need or desire.
Make your presentation based on the need or desire.
Close and conduct follow-up.

Here's how these four steps translate into effective collections.

Identifying the decision maker. Identify and contact the person in the customer's organization who has the authority to pay you and, just as important, who can also tell you authoritatively why you were not paid by the due date.

Determine this customer's "type." There are three types of delinquent customers:

Type I customers are slow pay either because they're practicing "cash management" or because they're disorganized.
Type II customers have a problem, either with you (disputes, errors, misunderstandings) or internally (short-term or chronic financial problems).
Type III customers are out to avoid paying.

Once you find out why you haven't been paid, ask a number of questions to determine which type of customer this is, based on the reasons they give for not paying. Open the dialogue in a nonthreatening way, one that should get the customer talking. The best opening line: "Our records show..." (Remember, give the customer the benefit of the doubt. Your records may be wrong.) If you start with "You've done it to me again!" or "You're delinquent!" you will turn the customer off.

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If you are unable to determine what type a customer is by virtue of the questions you ask, simply describe the three types and to the customer, and then just ask the customer what type he is.

Many collectors skip from Step 1 to Step 3 ("Now I've got you! Let's talk money!"), bypassing this important Step 2. In most cases, they will fail in their collection efforts.

Making the presentation. Once you have identified what type the customer is, make a presentation designed to address the customer's situation. Tailoring the presentation is crucial to success. If, for example, you treat a Type III as if it's a Type I, you will never get paid. The customer will leave you hanging.

On the other hand, if you get off the phone with a Type III, make your next call to a Type I, and treat that customer as if he's a Type III (because you're still angry from talking with the real Type III), you'll only anger the customer and possibly turn him into a Type III (a self-fulfilling prophecy).

Closing and following up. At this point, you reiterate the arrangement you have made with the customer. Example: "As I understand it, you're going to send me a check today. Please mark it to my attention." As in Sales, follow-up is critical. Keep and use a calendar.

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.