Cranking Up Collections:
The Key Drivers Underlying Collection Productivity
By David Schmidt
You do not have to be a smooth talker to excel as a collector.† More important is how you use your time.† The best commercial collectors are those who contact the most debtors day in and day out, and that does not happen by simply showing up for work.† To get better results you must re-examine your collection process.
Collections Is a Numbers Game
Most collectors find it virtually impossible to call every past due account once a month, much less follow-up another time or two on the problem guys.† There simply is not enough time.† This is why some creditors do not begin their collection efforts until 15 or even 30 days after an invoice has gone past due.† Such a strategy is tantamount to surrender.† It would be better if you added that grace period to your terms.† In fact, your customers may be using an accounts payable strategy called payment timing optimization to uncover your implied terms, whereby they pay you as late as possible in your collection cycle without you considering them a collection problem.
The solution for most collectors is to use a combination of automated correspondence and phone calls to get full coverage.† The trick then is to find the most effective dunning routines as well as the right combination and timing of calls and correspondence.† You also you need to streamline and organize all the activities that support your collection effort if you are going to realize the maximum effect.
Free Up More Time for Contacting Customers
The prime reason collectors do not collect more is they are overwhelmed by support activities.† The obvious solution is to free up more time for making collection contacts.† One way to do this is by blocking out large chunks of time exclusively for contacting past due accounts.† What this does is force collectors to either find more efficient ways to handle the supporting clerical activities or forego some of them.† Would you rather have your collector make another collection call or respond to a request for a credit reference?† This is not to say you should stop sharing trade references, only that they should be handled efficiently (share them with your credit reporting agency not individuals) and not interrupt collections.†
It is really just a matter of making collections the collectorís top priority and getting rid of as many of the distractions as possible.† Too often, collectors have become slaves to their paperwork, and when that happens, they get caught in a downward spiral in which they spend less and less time on collections and more and more time on clerical activities that have a minimal impact on cash flow.† The good news is, as more time is spent on collections, the fewer past due balances there will be to collect along with a corresponding reduction in support activities.
Keep Credit and Collection Information in One Place
Many collectors keep notes on their receivables aging report.† One problem with this is the notes need to be recopied every time a new report is printed.† Another problem is that no permanent record of the collection activities against an account are recorded, making it difficult for anybody other than the collector to know what is going on.† Many collectors also record payments on their aging report, a waste of time, especially when remittance details are posted within 24 hours and available for look-up on the computer system.
Logging collection activities in the customerís credit file is a better way to go.† The trade-off is that more filing will need to be done, but hopefully by a clerk.† Better yet are computerized logs integrated with the receivables database.† Collection software built around a strategy driven follow-up system gives the collector a single data source as well as automated collection tools, allowing much more time to be spent on collections rather than support activities.† If you cannot fully automate, at least organize your system so that collectors do not have to check or update a half dozen data sources (calendar or tickler file, aging report, credit file, remittance log, contact log, computerized receivable status screen, and so forth) every time they contact a customer.
Prioritize for Maximum Cash Flow
Some collectors work alphabetically through their receivables while others contact the oldest balances first.† Neither of these schemes serves to collect as much as possible as soon as possible.† In the long run, it is better to be a little less comprehensive and instead collect more.† This requires that your collections emphasis is on going after the largest past due balances no matter how old they are.
The only exception to this rule is if you have already contacted a debtor and need to follow-up on their commitments.† Effective follow-up procedures are critical to successful collection efforts or else you have wasted the previous contacts.† After the follow-ups and the large balances have been contacted, old balances, small balances, and then unresolved deductions issues can be addressed.
Grouping your collection activities by the past due situation and type of contact needed further adds efficiency to your efforts.† Repetitive activities can generally be done faster than jumping between different types of tasks.† For example, faxing invoice copies to a large group of small balance accounts is an effective first contact (the most frequent excuse for not paying is not having an invoice copy) that is most efficiently handled in a batch.† By setting collection priorities and then thinking through your plan of attack, you can increase your rate of collections.