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Five insider tips for collecting delinquent accounts.

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October 29, 2019

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Your bookkeeper slowly walks into your office on a cold, rainy Monday morning and announces that YOU are suddenly having a cash flow issue. What?? But we had a record year in terms of sales, right? The bookkeeper says, “Right, but only 90% of our customers have paid their balances in full.” Now we have to chase the other 10% so we can meet our own accounts payable obligations. Sound familiar?

Fortunately, there are some proven tactics that your internal collectors can do to increase their chances of collecting on outstanding debt before having to turn to a professional collection agency or attorney for assistance, which, of course, represents an additional expense for your company.

Reason for non-payment

It is crucial to determine the exact reason for nonpayment as soon as possible. All bad debts typically come down to two things: CAN’T PAY or WON’T PAY. Your job is to determine which one it is and respond accordingly.

CAN’T PAY. Most non-payments result from real or imagined lack of cash flow. Seasoned collection pros recognize when they hear “poor cash flow” it means they will invariably be looking to structure a payment plan with the customer to help them with their cash flow issue. The key here is to first understand ‘can’t pays’ are the easier of the two to deal with. It is very important to come across to your customer as a problem solver and showing empathy is the best way to accomplish this. You need to convey to them that you are partners and want to help them. You can still be fair and firm and make sure the pay plan you come up with works for both parties. Once a pay plan has been agreed to, put it in writing and get your customer to sign it. Even responding to an email will suffice. Document everything.

Then it comes down to monthly follow-up to ensure they honor the plan. Remind them a week before the due date and be prepared to call them the day after the due date if no payment shows up to hold their feet to the fire.

WON’T PAY. If your customer adamantly states they won’t pay, then this is where experience and savvy negotiations come into play. ‘Won’t pays’ typically mean there is a real or imagined dispute of some kind; belief your product/service was not satisfactory, breach of contract, never authorized service, no-shows,or an over-zealous sales rep who oversold them. The key is to listen without interrupting, even if you know they are full of poop. When it’s your turn to speak, if the dispute is valid, you can be the hero and assure them you will fix the problem to their satisfaction as long as they agree to pay in full. Hold them to their promise.

If the dispute is not valid (most aren’t), politely tell them so and why. If you find yourself in a stalemate, you can consider offering them a settlement for less than the full balance as an inducement to save money and resolve the issue without the need for further actions. Settlement negotiations can be a very effective tool, if used properly, and you don’t have to give away the store to do it. Have a number in mind of what you would be willing to live with, and then start with a higher number, which gives you some wiggle room.

And never accept the first offer. This is settlement strategy 101. They can always go a little higher than their opening offer.

Making the call

Identify the customer and the individual you are speaking with. Dealing with the wrong person is a waste of time and potential trouble if the debtor gets upset over improper disclosure of information to parties that should not have this information.

Next, identify your company and yourself, after you are sure you have the correct party. Give the full name of your company and yourself. Speak slowly and distinctly.

Explain the reason for your call such as “Mr. Smith, this is Joe Johnson with ABC Corporation, and our records indicate that you owe $1,543.00. Will you be mailing the full payment to our offices today?” Don’t hedge, but don’t overdo it and try to intimidate. Be business-like and professional.

Use a psychological pause. Give the debtor time to respond, normally 10-20 seconds. Let him/her tell you why they haven’t paid. If it’s a legitimate reason, they certainly won’t hesitate. Don’t interrupt the debtor since it could cause you to lose leverage.

Instead, listen. Let the debtor explain the problem and if he is argumentative or hostile, let him blow off a little steam, within reason.

Next, determine a solution. It’s important not to terminate the conversation until you have reached some agreement on solving the problem, whether it is a payment plan, payment in full, or another solution. It’s important to clarify with the debtor the reason for not paying. You must be convinced the problems have been resolved and the agreement reached is acceptable – date, time, and person you have discussed the past-due account with. Follow up with a letter or email outlining and confirming the conversation of what you expect to happen next.

The broken promise

All debtors break promises. Keep that to a minimum with excellent follow-up.

This is what really separates a professional agency from a credit grantor. If an individual promises payment on a Friday, we send reminders a week prior to the due date. If the payment does not arrive on that date, the debtor is called. The debtor soon learns he has absolutely no leeway with us and finds it is in his/her best interest to pay the creditor who is now like a second shadow. By keeping good notes and a close follow-up system, you can knock your broken promises in half.

Follow-up starts with the closing of the call and a short note to the debtor indicating what you are expecting from him and when.

When you contact the debtor about a broken promise, look on it not as a promise made to your company, but rather a promise made to you directly and personally. Use phrases like “You promised me that payment would be made on last Friday. I have not received the check. It is important to me that we get this matter resolved today.”

The debtor must be educated as to your policies and must understand that you will not accept broken promises and that you expect to be paid in a timely fashion.

Coping with angry or hostile debtors

Here, the debtor takes an aggressive posture, justified or not. The anger could be the by-product of some other recent event and may or may not be a legitimate problem. Railing accusations about poor service, unresponsive sales reps, slow delivery, credits due or harassing collection activity are some of the arguments you may encounter.

Hostile expressions can tempt a caller to respond in kind. At no time should you reciprocate. Always maintain a calm demeanor. Ask specific questions regarding the complaint and assure the customer you will follow up. Be sure to seek a commitment for paying before concluding the call. Remember, the customer could have communicated the alleged problem before your call. Unjustified, angry and hostile complaining may be a ruse to solicit a negative response providing a rationale to further delay payment. Defuse this defense. Maintain a courteous, friendly tone and show concern.

You will, many times, receive rude treatment by the debtor due to pressures and circumstances that certainly are beyond your control. Among them may be marital problems, death in the family, and most obviously, money problems. While an expression of sympathy may be in order, do not be distracted from your purpose. Maintain a serious demeanor and seek recovery. You may have to work out an agreed arrangement; however, by maintaining a serious tone you will deflate any notion that you can be easily manipulated. Neither you nor your customer should perceive or treat this type of defense as routine and acceptable.

Most people do intend to pay their bills, and if he’s struggling to pay you, you certainly can and will be a convenient target. Again, you are not a whipping boy for any debtor, but a little empathy can sometimes go a long, long way.