A Firm that is used to collect its invoices late from most of its clients should not consider it as a fatality. To overcome such a situation, the Firm will need to change its corporate culture and incorporate a true belief that the Firm has the power to influence its client’s behaviour. It should be clear that this is a gradual process that should include rational and assertive explanations to the clients provided by all the Firm employees, at all level, on the importance of on-time payments. The process should start with the CEO, top-down.
The importance of the ‘Collecting firm.’
Firm’s CEO or owner’s consideration of the Collection unit as a separate entity, which is disconnected from the whole commercial activity of the firm might lead to disastrous consequences. The management of collections must be an integrated part of the business management of the firm, at all level. Every function in the firm needs to consider its role in the collection process to allow the firm to reach its collections targets.
Creating a notion of the importance of collections throughout the firm is essential: determination in collections, information sharing across the firm, accurate fulfilment of the firm’s procedures, the pride of collections team members, solution of collections issues through cross-departmental meetings and regular polls among all participants in the process.
Regular updates and lessons learned needs to be shared across all functions of the firm on the important impact of a sound collections process over customers’ retention, cashflow assurance, the importance of accounts receivable in the balance sheet, risk management, firm’s profitability and examples of collection failures and the damage caused by them.
It is recommended to organise workshops and seminars (internal and external) with all the participants to the process and discuss each other’s roles in the collections process, including the role of external lawyers.
It is also extremely important to deal with products failure issues, customer service quality, broken promises, and their direct impact on the collection process.
The personal responsibility of the firm employees on Collections
Even the delivery driver has an important role in collections – proper signature on a delivery bill or to wait patiently for the customer to provide a cheque for the delivered goods, are two examples of what is needed for an efficient collection. The customer will mostly not be enthusiastic about writing a cheque on the spot. Therefore the delivery driver has to be patient and needs to be trained in advance to be able to verify if the cheque has been correctly filled and signed, and matches the invoice. Receiving an improperly filled cheque or a cheque that does not fully cover the invoice amount will cause unnecessary expenses to the Firm.
The responsibility of the salesforce employees on Collections
Managing sales on a cash basis, meaning that the sale is complete only when the cash reaches the Firm’s bank account. The practical result is that the salesperson will receive her/his incentive only after the cash reaches the Firm’s bank account. This practice undoubtedly improves collections and makes the salesperson a major stakeholder in the collection process. The practice is not widely in use as sales managers hesitate to use a practice that could undermine the salesforce motivation.
The main question is: should the salesperson that closed the deal, take responsibility for collections? This question is tough and complex, and the answer to it will never be obvious. However, the answer to this question should be yes in general, as a sale without collections is a loss to the Firm and the salesperson should be exempted of the responsibility on completing the sales process.
Usually, the salesperson has the first encounter with the customer; he sets the order, and follows up until the delivery of the goods or the service – therefore, she/he should also be responsible for verifying that the customer pays as agreed. Furthermore, the salesperson has direct and valuable knowledge of the customer’s situation, and she/he should be able to assist if a customer does not pay in time. Of course, usually, a sale is approved by the credit department so that the responsibility on the payment is not solely on the salesperson.
In small firms, when there is no collection department, and the responsibility of collections is on the accounting department (or person), the importance of the salesperson is even more acute.
In larger firms where there is a collection department, the collection agents will handle the process unless the payments are not processed as agreed. They will then involve the salesperson into the collection process and will share the responsibility of the recovery.
In some firms, the collection department or collectors are part of the sales department.
The importance of the collection of the first sale
The success of the first sale’s collection is essential to assure a durable and qualitative relationship with the customer. It is also crucial for the overall quality management of the Firm. Any collection issue that will raise in the first sale indicates a malfunction in the sales process. The proper root-cause analysis and treatment of the collection issue will allow improving the quality of collections as well as the whole sales process. The Firm has to control that the product sale and provision were performed as agreed with the customer. The Firm also needs to control that the customer was correctly billed, as agreed, and then will be able to evaluate the customer’s actual payment ethic.
The collection of the first sale allows us to detect and learn about the following potential issues in the customer’s acquisition process:
- Missing or incorrect billing address;
- Problem with the payment method (direct debit not approved, rejected card, wrong bank details, etc.);
- Failure to pay the first payment in time;
- Non-payment of an invoice may indicate a failure in the selling or provisioning process;
- Non-payment of an invoice could also indicate an incorrect invoice or an invoice that does not reflect the agreed conditions with a customer (wrong price, missing discount, quantity or even product error).
The collection’s corporate culture can help to prevent these issues or reduce them to the minimum.
NEXT – The collections department – structure, responsibilities and authority