How to Kill a Customer:
Seven Practices Credit and Collections Needs to Avoid
by David Schmidt
Because credit and collections is on the front lines in dealing with customers, it is vitally important that you watch out for activities that are customer killers. Building a strong customer relationship is just as vital to effective credit and collections as it is to the selling process, so you do not want to do anything that might adversely affect the customer relationship, even if unintended. Here are seven practices you should avoid.
1. Hold Orders Unnecessarily - Some credit pros will argue that holding orders is the best leverage they have for collecting past due balances from intransigent customers, and you know what - they’re right. However, most credit departments hold many more orders than they should. Too often, credit approval parameters are set up so orders almost always land on hold, yet most are subsequently released without any additional collection activity. In those circumstances, the credit hold queue is being used as a work queue for checking on the status of collection activities, even for key accounts that should never be put on hold unless there has been a crises. The problem is, that is a waste of time (which could better be spent collecting so fewer orders end up on hold) and it risks delaying customer shipments. Customers who are going to have trouble meeting your terms of sale need to be set up with appropriate financing alternatives within reasonable credit parameters so that each new sale does not raise a potential conflict.
2. Treat All Customers the Same - This ties into the previous paragraph. You should have different credit policies for different customers in distinct industries and markets. For example, a customer selling FDA approved inks should not try to subject printing companies to a rigid set of policies and procedures that have been established for dealing with food manufacturers. Though they may both buy similar products from you, each has very different credit needs.
3. Continually Send out Incorrect Invoices - Customers want to minimize their A/P costs, but that is difficult when vendors send invoices that do not conform to their purchase orders. Furthermore, invoice discrepancies usually result in payment deductions which sap everybody’s productivity. Having a ‘clear deal’ before goods are shipped and billed is essential if you are going to bill every invoice right the first time. Besides, doing it right takes away an excuse for your customers to delay payment.
4. Take a Long Time to Resolve Disputes, Discrepancies and Deductions - The longer it takes to resolve these types of things, the more it costs to do so for everybody involved. Besides, this stuff is annoying.. Resolving all issues immediately and eliminating the causes of recurring deductions and disputes will sharply improve customer satisfaction.
5. Repeatedly Send out Statements and Past Due Notices that Contain Disputed Items or Unresolved Deductions - This is an added consequence of the previous situation. By re-sending documents that include errors or issues that should have been addressed, you are putting your own company’s incompetence on display. And, customers do not want to have to deal with these issues more than once in order to get them corrected. With a good A/R system, you should be able to code all problems so that they can be culled from statements and be expeditiously resolved apart from routine A/R issues.
6. Pass Customers with Complaints from Person to Person and Department to Department - Maybe nothing frustrates anybody more than getting the run around. Customers should be provided with a single point of contact for resolving all billing issues. In addition, those charged with handling complaints need to be empowered to make binding decisions.
7. Don’t Listen - Credit and collections is essentially an ongoing series of negotiations with your customers. Moreover, good negotiators generally have the best information. If you do not listen to your customers, you are failing to recognize a valuable source of information, and you will end up negotiating without a clear picture of the overall situation.
It is important to create an environment that encourages cooperation rather than conflict between your company and its customers is developed. The idea is to make it easy for customers to do business with your company. Credit and collections plays a key role in this because of its involvement in the order approval and collection processes. Customers will respect a courteous yet efficient and professional credit and collection staff, but will be quickly turned off by one that is seemingly unreasonable and inefficient.