A Focus on Collections & Credit Fraud
Most Read YVCM Articles Over the Past Year
Happy New Year! As the new year approaches, many of us take pause to review the ups and downs of the year gone by. Publishers are no different, though we like to focus on what piqued the interest of our readers, and then give them more of the same. In our case, we found a continued interest in collection technique and strategy, as well as in fighting credit fraud. What follows is a summary of the three most read article for the 12 months ending in October 2024, and links to the originals.
Avoiding These 8 Collection Mistakes Will Pay Dividends
In order to optimize collections and improve cash flow, it’s crucial to avoid common mistakes that can delay payments or lead to non-payment. These mistakes, often due to oversights or poor execution, can significantly impact a company's ability to get paid on time.
One major mistake is failing to request payment promptly once an invoice is past due. Delaying collection efforts sends a message to customers that late payments are acceptable, establishing a bad precedent. To avoid this, collections should begin within 3-7 days of the due date.
Another key error is avoiding direct communication with customers, such as making uncomfortable collection calls. While emails are often used, phone calls can be more effective, especially for high-risk accounts.
Additionally, it’s essential to schedule follow-up activities after each collection call to maintain momentum and not let efforts go to waste. Failing to log details and insights from these calls, such as customer payment patterns or disputes, can lead to missed opportunities for improvement. Further, any verbal promises made by customers to pay should always be confirmed in writing, providing both a record and an increased likelihood of payment.
Empty threats, such as promising legal action without intending to follow through, undermine your credibility and weaken your position. Similarly, focusing on being liked rather than respected can lead to ineffective collection strategies. It's important to maintain a professional, businesslike tone during collection calls, avoiding unnecessary small talk. Lastly, sending mixed messages—whether in the form of ambiguous language or contradictory threats—can confuse the customer and delay payment.
By staying strategic, organized, and consistent in your collection efforts, you can significantly improve your company's cash flow. Avoiding these common mistakes will ensure that your efforts yield better results and that collections are handled efficiently, without wasting time or resources.
For more detail on this subject, here’s the link to the original article.
Editors Note: Because this is our year-end “Best of” type article, there is no paywall, which allows all our subscribers to read the entire article. However, access to the original articles via the links we’ve embedded is only for our paid subscribers. If your enjoy this article and would like to get access to the full story, we hope you will subscribe
Best Practices for Handling Customers that Put a Low Priority on Paying Your Company
Collectors face various challenges when dealing with past due balances, particularly when customers prioritize payments based on their financial situation, economic conditions, and internal processes. Identifying the root causes of late payments—such as financial distress, economic factors, discrepancies, or communication barriers—can help develop a targeted collection strategy.
Often, customers in financial distress will implement a prioritization scheme, paying essential expenses first, which can push your company lower on the payment list. Similarly, disputes or discrepancies with invoices can delay payments until those issues are resolved. To address these challenges, collectors should adopt a strategic, diplomatic approach to push your company to the front of your customers’ payment schedules.
Here are ten best practices to improve payment prioritization from customers:
Understand the Customer’s Situation: Assess the customer’s financial health and organizational structure to tailor your approach effectively.
Build and Maintain Relationships: Foster positive relationships to facilitate communication and negotiation.
Educate Your Customers: Clearly communicate your credit and collection policies, as well as the consequences of non-payment.
Enhance Communication Tactics: Use various communication channels and customize your messages to each customer's needs.
Employ Escalation Procedures: Escalate the issue within your organization and customer’s hierarchy to reach decision-makers if initial efforts fail.
Prioritize Collection Efforts: Focus on customers with large or critical outstanding balances, especially those most overdue.
Negotiate Payment Plans: Offer flexible payment options and incentives to encourage timely payments.
Leverage Technology: Use automated systems or CRM tools to track payments and send reminders.
Document Everything: Keep detailed records of all communications and agreements to avoid disputes and protect against legal issues.
Review and Adjust Strategies: Continuously evaluate and refine your strategies based on feedback and changing circumstances.
By following these best practices, collectors can raise the priority of payments, improving the likelihood of successful collections while maintaining positive business relationships. Being persistent, professional, and adaptable to the unique needs of each customer is key to achieving better results in collections.
For more information on this subject, please click on this link.
Need help improving cash flow? Besides driving O2C process improvement, the experts at Your Virtual Credit Manager can apply default risk probabilities & other financial benchmarks to your AR portfolio to reveal actionable credit & collection insights.
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Please share this newsletter with your small business customers . . . it just might help them collect faster and pay you sooner.
Don’t Let Your Company Become an Easy Target for Commercial Credit Frauds
The increasing pace of B2B fraud underscores the importance of not only assessing a customer’s financial stability but also implementing practices to mitigate fraudulent transactions. In 2022, over half of companies experienced at least one fraud attempt, with many suffering significant financial losses.
Fraud can occur at various points in the customer lifecycle, particularly during customer onboarding, changes in customer information, and when payments are made. The most common fraud schemes include Business Email Compromise, changes to supplier information, and account takeovers. Criminals often use tools like email, fake documents, stolen identities, and phishing to divert payments and create fraudulent transactions.
Several prevalent fraud scenarios target the order-to-cash process, including:
Email Compromise: Fraudsters hack emails to redirect payments or create fake orders. Preventing email comprpomise requires verification of changes (payment details, shipping address, etc.) via direct external communication with the customer.
Bust-Out Schemes: Criminals establish fake businesses, submit fraudulent credit applications, make small payments to build trust, then divert large orders and dissappear, turning receivables into bad debts. Due diligence on new customers and any unexpected orders that seem too good to be true is required to beat these schemes.
Changes in Ownership: New owners of businesses may refuse to pay debts from the previous owner, creating complications in recovering funds. Ensuring legal due diligence and credit reviews are crucial to prevent loss.
To reduce fraud risks, companies can implement best practices such as:
Engendering Transparency: Regularly informing staff about fraud attempts to build collective vigilance.
Providing Fraud Prevention Training: Educating employees on fraud risks and using cataloged fraud cases for ongoing training.
Maintaining Up-to-Date Policies and Controls: Implementing comprehensive, updated fraud prevention policies, including multi-factor authentication, bank account oversight, segregation of duties, and background checks.
While fraud will continue to evolve, companies can reduce their exposure by keeping policies updated and enforcing stringent controls. Though no system is foolproof, proactive measures can significantly limit the impact of fraudulent activities, particularly as B2B transactions increasingly move to electronic payments.
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