Collections over the phone
Collection over the phone is currently the most basic tool in the collection field. As the world becomes more and more familiar with the saying “yes to the phone”, targeted conversations with customers – an effective and relatively cheap tool – become the most common means of carrying out the work of collection.
The purpose of the focused conversation with the customer who is late in payment is to understand as quickly as possible the reasons for the non-payment, to provide an adequate solution and to collect the debt. It is well known that good debt collectors are usually good salespeople. We will not go into how to conduct the conversation with the customer here, but we will mention some important basics:
- It is important to provide the collector with accurate and reliable information about the amount of the debt.
- He should have references to the debt – such as invoices, delivery notes, a signed order or a signed contract.
- The conversation must end with a timely summary of expectations from the customer, and a clarification as clear as possible about escalation procedures that will be taken if the money is not received as promised. This clarification should not be perceived by the client as a threat, so it is important to spend time thinking about appropriate wording, but it is important not to ignore it in order to coordinate expectations between the organization and the debtor.
- When the organization has a large number of customers, proper collection management requires the use of collection centres.
Direct mail
Demand letters, e-mail, text messages – the use of these methods was presented in the section on arrears, as the first payment request from the customer.
Meetings with customers
Sometimes, collection over the phone is not sufficient for effective collection and personal meetings with the customers are required. This is especially true for business customers when the accounting with the customer is very complex and the telephone collection representative has difficulty convincing the customer that he indeed owes the amount that the organization demands. In these cases, there is no escape from holding a meeting with the customer (at the organization’s offices or at the customer’s place), to discuss the points of dispute that cause the non-payment (such as partial delivery), to compare accounting records and, if necessary, to negotiate for the payment of the debt.
In some organizations, it is usual to employ field collectors, who constitute a “long arm” of the collection department. There are cases where a tour of the place, questioning neighbours, etc. allows the area collectors to locate customers who have “disappeared” without paying off their debt.
Collection from customers in collaboration with the business units in the organization
Effective collection from customers is not the job of the collection personnel alone. All branches of the organization that come into contact with the customers should help with this. We discussed this in general within the section “Organizational Culture for Collection“, and we will repeat the principle as an aid to all stages of collection.
The sales representatives and managers know the customers well, take care of maintaining relations with them and visit them from time to time. Close cooperation between the salespeople and the collectors is essential to the success of the collection. The sales representatives and managers are usually required to intervene even when the customer expresses reluctance to pay due to dissatisfaction with the product or service (related to the customer’s expectations of the product or service).
The customer service personnel, who handle various issues for the customers, can also assist in the collection effort. When the customer applies to receive a service, he is in the position of requesting and may be able to answer positively to the service representative who asks him to pay off his debt at that moment.
Similarly, any technician, logistics person or other organization employee who arrives at the customer’s premises can contribute to the collection effort and should be informed in advance of this opportunity.
Collection by clearing institutions (banks, credit companies, etc.) and other payment processor
Large companies and institutions can carry out their collection through other large entities. for example:
- Through the websites of the banks or the postal authority, it is possible to pay standing orders to many institutions, such as tax and fee payments, property taxes, electricity, gas, telephone and even police and parking fines.
- By adding the option to use online payment services like Google Pay, Apple pay etc.
- Payment of parking services through a cell phone provider.
- Donations through cell phone account.
A self-service website
If the organization has a commercial website, and the issue is technically possible, it is desirable to allow customers to pay their debt independently without the need for a collection call by a representative. To this end, the website must provide the requesting customer with an accurate breakdown of the “open” (unpaid) invoices and secure access to the payment of the debt.
The customer could also be allowed to update his payment methods. To setup a repayment plan or reschedule an existing one. However, there should be some automated controls to prevent the customer from postponing his repayment forever. For instance, a customer could be allowed to reschedule a repayment only once or twice. The number of repayments and their size could also be limited.
Often customers who cannot commit to a repayment plan wish to have the possibility to make small payments online. This has both the effect of encouraging collections and allowing the company to understand that the customer is willing to repay his debt.
Interest on arrears and collection fees
We first raised the issue of the client’s willingness (motivation) to pay on time. One of the ways to motivate customers to pay on time is to impose interest on arrears and collection fees for any delayed payment. This lowers the viability of unallowed credit extensions, and in cases where the customer does not repay his debt due to negligence alone, this provides an incentive to act by the credit terms agreed upon.
Also, there is a commercial justification to charge the customer with collection fees due to the expenses caused to the organization by the failure to pay the invoice on time. For example, when a customer’s check or direct debit is not honoured by the bank, the bank charges the organization fees. To minimize the damage, the organization may charge the customer collection fees accordingly. Sometimes, it is customary in organizations to add an amount to the bank fee to cover the expenses of the organization (for example, to cover expenses such as a telephone call or a letter to a client). There are no firm rules on the subject, and everything depends on the organization’s policy and the relationship with the client and the organization’s ability to oblige the client without risking losing him as a client.
Charging the customers with collection fees and/or interest also provides a bargaining tool for the collectors. The organization can sometimes allow the collections agents to decide on granting a credit to the customer for those interest and fees, against immediate repayment of the debt (and an obligation to pay at a future date).
In some countries, a regulator could limit these charges. In the UK, the FCA is closely reviewing the way regulated firms charge customers for late or early repayment fees.
Mediation proceedings
The mediation we deal with takes place at the initiative of the parties even before filing a lawsuit in court (or at the recommendation of the court). Mediation is a non-binding and informal setting where the parties sit in the presence of a mediator(s) they have chosen jointly (and preferably without the presence of legal advisors). The mediator’s goal is to convince the disputing parties to reach an agreement/compromise of their own free will. Mediation procedures are usually completed within months (compared to the continuation of legal proceedings for years), thus saving the parties a lot of time and financial costs.
Arbitration or Legal mediation
The arbitration process is conditional on the consent of both parties or the recommendation of the court, and the arbitrator agreed upon by the parties is granted many powers. Once both parties have decided to resolve the dispute through arbitration, there is no going back, and the arbitrator is the one who will decide the dispute and his ruling will be final, and can only be appealed rarely and in exceptional cases. The arbitration procedure is usually completed within a few months, compared to a legal procedure that may span many years, thus saving time and money for the parties. At the end of the process, the decision is similar to a Court decision and is enforceable by the parties.
Supplier-customer offset.
Sometimes, some customers are also suppliers of the organization, and therefore it is possible to carry out debt offsets instead of collecting the debt. However, this move requires a prior review of the agreements with the client/supplier, because sometimes there are clauses in the contracts that prohibit such offsets. From the aspect of proper bookkeeping – the offsetting operation makes it difficult to properly manage the bookkeeping books, and it is desirable to avoid this, as long as possible, and to perform it only with the agreement of the supplier.
Severing the commercial relationship with the customer
We discussed the issue in detail in the framework of the treatment of overdue debt balances in the section discussing collection enforcement.
Legal proceedings through lawyers end enforcement authorities
When the organization exhausts all efforts to recover the debt from the client, the client is transferred to the care of an external lawyer. For the expansion of the considerations for transferring a client to legal proceedings – see the collections enforcement section, which deals with the collection process, and the legal section, which deals with the background of legal proceedings.
Collections outsourcing
Taking the issue of collection outside the organization to dedicated companies that specialize in collections. Often, commercial companies are reluctant to entrust their collection management to external companies for fear of losing their customers. This method is used for instance by local authorities, who usually hire collection companies to carry out the local tax collection. This is mainly possible because the “customers” of the local authorities are “captive customers” who cannot switch to another supplier, and the local authority’s concern about an acute reaction from its consumers is mainly limited to periods of municipal elections.
Beyond the concerns regarding the customer’s response – the outsourcing method can provide a good response in places where the organization does not have the knowledge and expertise required to effectively carry out the collection. For example, if an outsourcing company has a lot of accumulated experience in handling municipal debts, it may not be worthwhile for a small local council to employ its own experienced collection manager and it would be better for it to outsource the collection handling to a company.
Outsourcing collections requires robust controls and systems to be able to understand the efficiency of the service providers.
NEXT: Internal methods of collections