Automated collection is collection by pre-determined payment methods which the customer provides at the time of the transaction: direct debits, bank standing orders, standing orders using credit cards and deferred checks (we referred to these payment methods in section 6).
At first impression, it seems that collection on time with automated collection systems 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 automatic collection on time, with separate reference to each of the three groups of automated payment methods.
The credit card companies and the banks inform the organisation in advance about the cancellation of their customers’ payment methods, through the clearing companies.
Upon cancellation of the customer’s payment method
As a best practice for automated collections, the organisation must immediately contact the customer and arrange an alternative payment method in accordance with the organisation’s policy. So far, this is a service activity that saves the customer from contacting the organisation. Some automated collection software will automatically generate SMS or emails to the customers. If the customer refuses to come up with an alternative payment method, then the collection processes can be started immediately, without waiting until the upcoming payment is declined.
A useful conversation for everyone following the cancellation of a credit card
Mr A lost his wallet with his credit card in it. He hurriedly 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 municipality, the mobile phone company, the landline phone company, the TV providers, the internet provider, etc.).
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 and helpful call, saving him waiting on the phone and preventing him from incurring future debt.
A short call like this, or sending a link to update his card vis SMS, 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 updating the means of payment to the organisation is negligible compared to the cost of collection from the customer after he enters into debt.
Regular monitoring of automated collections
If so, the collection manager must regularly monitor the cancellations of his customers’ fixed payment methods and check the success rate of referrals 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. It is also possible that the issue could be due to a change of parameters by the credit card companies that were not communicated or not implemented in time.
Recommended reports to control cancellations and reordering automatic payment methods
- The distribution of cancellations of automatic payment methods according to the reason for cancellation, compared over time.
- The proportion of customers who arranged new payment methods out of all monthly cancellations, compared over time.
As for bounced checks – even here, it is possible to carry out ongoing activities to find out in advance the validity of the checks. For this purpose, you can download in certain countries restricted bank account files from the Central Bank website and compare them at regular intervals (daily/weekly/monthly) to the file of rejected checks of the organisation’s customers. In this way, it will be possible to locate in advance, sometimes with a few months’ notice, the future checks that will return without coverage – to act quickly with the customer and even get ahead of all the other creditors.
With payments made by automatic payment methods, 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 the various branches of commerce – about 91% to 97% of customers with bank standing orders and about 99% to 99.7% of customers with credit card standing orders pay their payments on time. The specific rate depends on the industry in which the organization operates as well as the quality of the customer’s procurement processes and the quality of collections.
Therefore, when the market conditions allow 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 credit card direct debit.
Recommended report
✪ Recommended control report for collection rates according to payment methods:
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
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