Collection according to the credit terms from customers who pay by means of payment in advance (automated collection)
Automated collection is collection by pre-determined means of payment that the customer provided at the time of the transaction: bank standing orders, standing orders using debit/credit cards and direct debits.
At first impression, it seems that collection on time by these means of payment is certain and guaranteed, but in practice this is not the case. We will refer here to the set of activities that the collection system must perform on a regular basis to ensure automated collection on time, with separate references to each of these groups of automated payment methods.
Diagram 24 demonstrates this schematically:
In some countries, credit card companies and banks inform the organisation in advance on magnetic media about the cancellation of their customers’ payment methods, through the clearing companies.
When the Company is made aware of the cancellation of the customer’s payment method, it must immediately contact the customer and arrange an alternative payment method in accordance with the organisation’s policy. This is a service activity that saves the customer from contacting the organisation. If the customer refuses to come up with an alternative payment method, then the collection processes can be started immediately, without waiting until the return Intended upcoming payment.
A useful conversation for everyone following the cancellation of a credit card.
A customer lost his wallet with the credit card in it. He swiftly cancelled the credit card, and then decided not to renew it but to ask his bank branch to issue him a new credit card (with a different number). Now he has a big burden – to call all the many parties from whom he needs services/products and re-arrange standing orders (for example – the electricity company, the city council, the cell phone company, the landline phone company, the TV providers, the internet provider….).
In such a case, if a representative of one of the companies initiates contact (following information he received from the credit company) and asks him for a new payment method, the call will be a helpful, saving him from waiting on the phone and preventing him from incurring future debt. A short call like this is much better in terms of customer retention than a long inquiry call in the future about the debt accumulated due to a lost credit card. Also, the cost of converting the means of payment to the organisation is negligible compared to the cost of collection from the customer when he enters into debt.
If so, the collection manager must regularly monitor the cancellations of his customers’ fixed payment methods and check the success rate of contacts to customers to arrange new payment methods. In any case of a substantial change in the data, an immediate investigation must be carried out and the reason for the change in customer behaviour must be found and appropriate measures taken.
Recommended reports to control cancellations and reordering of automatic payment methods.
1. The distribution of cancellations of automatic payment methods according to the reason for cancellation, over a fixed period.
2. The proportion of customers who arranged new payment methods out of all monthly cancellations, over a fixed period.
As for bounced cheques – it is possible to carry out ongoing activities to find out in advance the validity of the cheques. For this purpose, you may make a query to one of the main credit rating agencies (UK) or query the CheckSystems (www.checksystems.com) in the US. (In this way, it will be possible to locate in advance, the future checks that will return without coverage – to act quickly with the customer, and even get ahead of all the other creditors.
Motivating the customer to commit to a fixed payment method
Our experience is that when payments are made by automatic means of payment, the customer asks himself much less “Should I pay this month?” or “Should I delay the payment?”. And usually, if he is able to pay on time, he will not act to delay the payment.
On average, across all various branches of commerce – about 90% of customers with bank standing orders and about 95% of customers with credit card standing orders pay their payments on time. The specific rate depends on the industry in which the organisation operates as well as the quality of the customer’s procurement processes and the quality of collection.
Therefore, when the market situation allows it, the organisation must act to transfer as many customers as possible to automatic means of payment, and sometimes it is useful and even desirable to provide an incentive to the customer who agrees to commit to a bank direct debit or a debit or credit card direct debit.
Recommended control report for collection rates by means of payment.
The collection rates for the various payment methods – according to the number of customers out of their total number and according to the amount out of the total turnover.