1.
Consistency and Credibility
Your business office managers need to maintain one consistent attitude
when dealing with people who owe money. Oftentimes, the owner of the
business defines and dictates the attitude to be replicated by all
employees. Collectors need to know that the attitude will be supported
up and down the line by all others whom come into contact with debtors
in various capacities. If this fails to happen, the collectors’
credibility will be diminished in the debtor’s mind.
2.
Dealing with Debtors
Your collection policy needs to reflect:
- Who is authorized to negotiate, and
- Who is allowed to make exceptions
Collectors must understand how much flexibility they have in dealing
with debtors. Can they:
- arrange or alter installment payment plans?
- reduce the amount due under certain circumstances?
- change the due date?
- forget a debt entirely?
- hold out for payment in full?
It’s important that a collector knows these answers prior to
negotiating with debtors since any hesitation on their part can weaken
their position.
Exceptions need to involve everyone, especially the collector. A key
part of this is eliminating unilateral decisions from up the line. For
example, consider a debtor who doesn’t like that a collector is
requiring payment in full. The debtor may then go directly to the
business office managers who, without informing the collector,
unilaterally tells the debtor to something entirely different. The
business office manager does this to eliminate an uncomfortable
situation. This quick “fix” can and will, however, put the brakes on
your collection efforts.
3.
Practices Within the Policy
You need to determine what sort of practices your policy will include
for dealing with debtors. While the possibilities available to you are
endless, consider the following questions:
- Will you put messages on your past due statements?
- Will you use collection letters?
- Will you use the telephone?
- Will you go to debtors and talk with them face-to- face?
Your answers to these questions help define your attitude toward debtors
and help create your collection
4.
Enforcing the Policy
A collection policy is only as strong as your willingness to enforce it,
and you will need to enforce it. Unfortunately, some people will not pay
you unless you take action. These people have little interest in
maintaining a business relationship and are the very people you want to
collect from the most.
This is when you need to review all the possibilities open to you
regarding enforcement. Considering practical, ethical, legal, and
business factors, you need to answer the following questions:
- Can you do it?
- Are you willing to do it?
- Are there ethical problems in doing it?
- Is it legal to do it?
- Would the action(s) do more harm than good to your business?
Are
you willing and able to:
- Write off the debt?.
- Cut off the customer?
- Charge a penalty? This includes interest charges and billing fees.
- Impact credit? This includes accurately reporting your experience
to credit bureaus, which affects the debtor’s ability to obtain
credit.
- Hire an agency? This includes outsourcing accounts to an agency
for professional collection.
_____________________________________________
Collection
Effectiveness Index
Another
useful tool in AR management is the Collections Effectiveness Index (CEI).
CEI is a metric many organizations are looking at to evaluate the
effectiveness of their receivable management process.
CEI
focuses on the quality of collection efforts over time by determining
the percentage of open receivables an organization is able to recover or
resolve within a given time period.
CEI
can also provide valuable insight into the strength and administration
of an organization's credit policy. The higher the CEI, the more likely
the organization is making sound decisions based on well- constructed
guidelines. As CEI drops, organizations should re-examine their credit
policy, as this may be an indication that they are extending credit to
companies that are not truly creditworthy.
The
formula for calculating CEI:
(Beginning
Receivables + Credit Sales - Ending Total Receivables) / (Beginning
Receivables + Credit Sales - Ending Current Receivables) X 100
|
