Effective Communication Strategies for Collecting Past Due Accounts
Dunning for Dollars Requires Clear, Concise, and Impactful Messaging
Finding the time and resources to complete every collection activity needed to be done at the optimal time to be done is a constant challenge. Most small companies come up short because the owner or CFO have more important things to do and there isn’t a dedicated employee responsible for credit and collections. The solution involves maximizing both the efficiency and the impact of the collection activities you do perform.
Dunning messages are transmitted today in two basic modes: a phone call or an e-mail, though text messaging usage is growing. There are obvious differences between verbal and written communications, but also similarities. Let’s explore both dunning modes and how you can achieve greater collection effectiveness.
The Fundamentals of Collection Communications
Be Concise
Regardless of the mode of communication, the central message should be expressed clearly:“Your invoice is past due and must be paid immediately. Until it is paid, no new orders will be shipped. Please advise when we can expect payment and the amount.” Don’t elongate or obscure this core message. It informs the customer of an unsatisfactory situation and a call to action to rectify it. It is simple, straightforward, efficient, and effective.
If you send an email or text you can attach a copy of their account statement. On a phone call, you should provide a summary of the amount past due, such as “$10,000 over 30 days past due” or reference one or two large past due invoices (number, amount, and due date), but no more. Your opening message must be concise. Later on you can go over the details.
Don’t Let Up
On a collection call, after asking when you will be paid, stop and wait for a reply. This creates an uncomfortable silence, but stick with it. It’s more uncomfortable for the customer who owes you money—so don’t let them off the hook or divert attention by saying something. This silence is one of the most effective techniques for securing a commitment to pay. When replying to a customer’s e-mail response, keep the attention and focus on the central message.
Don’t Accept Excuses
More often than not, instead of a promise to pay, you will first get an excuse. Good collectors are expert at deflecting excuses. Here’s some examples of common excuses and effective responses:
The check is in the mail—When was it mailed, what is the check number and amount?
We don’t have the funds to pay this week—How much can you pay this week & when will the rest of the funds be available?
We only process checks twice a month—Fine, when will you pay these invoices, and what do we need to do to get future invoices paid on time?
We never got a copy of the invoice—I am emailing a copy of the invoice to you as we speak. When can you pay it?
Stay On Message
In any dialogue (voice or email/text), it’s critical you stay on message. Don’t get diverted into ancillary issues until the collection issue is resolved. Ancillary issues can be inquiries over unapplied cash (unless it pertains to one of the past due invoices), open debits, miscellaneous credits, complaints about service, etc. The key issue is securing a commitment to pay the past due invoices.
Don’t get sucked into a prolonged discussion on business conditions or the problems the customer is facing, unless they appear to be indicators of default or business failure. These are all distractions to the main objective and they reduce the efficiency of your collection efforts. Don’t hesitate to revert to the core question—When and how much will you pay?—to regain control of the dialogue.
Escalate Each Next Step
The intensity of your communications should increase with each subsequent outreach. If a polite request for payment goes unanswered, your next request needs to be tougher. If there is no response to your emails, make a phone call. If the AP clerk, won’t help you, talk to the controller. Keep upping the pressure until you are paid. If you are not making progress on your own, there comes a time when you should escalate the matter to a collection agency or attorney. For more about when to use a collection agency, check out this post: Calling in the AR Cavalry.
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Advantages and Disadvantages of Phone Calls versus E-mails
Phone calls are the most effective if you can get through to the proper person. They create a sense of immediacy about the issue and can be done very efficiently. The drawback is engaging the right person in a discussion. Calls are easy to avoid. It may require several calls to reach the right party, so don’t be afraid to leave a concise voicemail message if it is a direct line.
Similarly, e-mails are easily avoided (just hit delete). However, many Accounts Payable (AP) staffers prefer this as they can address them as their schedule permits and avoid a productivity-decreasing interruption. Also, e-mails can provide more complete account information and can be issued automatically in high volumes, especially if you have collection software with an email component, which increases efficiency and portfolio coverage.
Collection inquiries can also be made through customers’ vendor portals—this is similar to an e-mail, but in theory it will get addressed, by a person in your customer’s AP department, more comprehensively and faster than via e-mail.
Best Practices for Collection Communications:
Identify and maintain a listing of the Accounts Payable (Accounting) contact at each customer and their supervisor, along with their e-mail addresses and phone numbers. When helping firms install collection software, we often found this information was not stored in one place. Typically, only some information was in the ERP/Accounting system, while other contact details were in the credit file or on a Roladex. Complete contact information needs to be in one place.
Automate the production and delivery of collection e-mails. No matter what IT systems you are using today, this is fairly easily done. As your number of customers increases, this automated dunning capability will generate even more collections productivity.
Develop a Collection Prioritization Methodology that fits your business. Contact those accounts first that will deliver the most benefit to your firm. Those are typically the customers owing the most as well as your most important customers (you don’t want collections to become a problem with the latter).
Train any employees performing Collections in effective Collections Communication. You don’t want to drop a dozen past due accounts on an accounting clerk’s desk and say “please, collect these balances this week.” It may seem a simple task, but most of the time unexpected issues arise during the collection process. Consequently, a little preparation goes a long way.
Document brief scripts for your employees performing Collections to use when conducting a collection contact. These will help anybody doing collections to be concise in their initial ask. Your scripts should also include a list of excuses and responses so they can keep the pressure on.
Develop an Escalation Protocol which increase the strength and frequency of the collection action as invoices age.By following a progressive collection strategy in conjunction with an effective prioritization scheme, you should be able to enjoy comprehensive and effective collection coverage.
There’s never enough time to make all the collection calls and send all the dunning notices, all at the most appropriate times. There is always a little bit of the sense of playing catch-up when you are dealing with collections . . . but after all, catching-up is what collections is all about. Past dues are an exception to the norm, and so require a reaction. The reaction is your collection efforts. If you know how to communicate effectively in terms of collections and have defined the parameters for accomplishing every collection outreach your situation requires, you should be successful and thereby able to prevent customer delinquencies from getting out of hand.