How many "bad debt accounts" do you have? How many of these do you expect
to ever finally collect? Actually, the reason most "bad debts" are never
collected is
because the holder of the bad debt eventually forgets about them because of the
collection effort, or else simply writes them off as another income tax loss.
So, if you'd like to collect some of those bad debts you've got stashed away in
a
special file at the back of your file drawer, the first thing you should do is
set up a regular
routine for dealing with these customers and follow through on a collection
plan. You
should definitely investigate each new customer's credit rating before you
advance him
any credit. Tell him of your credit terms verbally, and print them on your
bills, and also
state that customers are liable for reasonable collection fees. If you make it a
practice to
bill your customer promptly, you'll find that your customers are more apt to pay
promptly. On the other hand, if you run your business in a slipshod manner,
you'll find
your customers slipshod in their dealings with you.
Should a customer fall behind in his payments, you should start with a mild
past-due letter to remind him, perhaps alluding that he may have forgotten the due
date of his
payment. With this letter, you should definitely include a duplicate invoice stamped,
"past
due."
Then about two weeks later, send a second letter, this one more strongly
worded than the first, but at the same time in a dignified and courteous
tone. The important thing here is to leave him an opening to voice a
legitimate complaint if he has one, but at the same time demanding some
sort of communication from him about this matter.
Should you still not receive payment or any word from your debtor, send still
another letter -- your third -- in which you apply a bit more pressure and appeal
to his sense
of fair play. Mention his credit rating and let him know that if he doesn't pay,
you'll be
forced to turn his account over to a collection agency -- however, never make
threats you
don't intend to carry out.
Finally, two weeks after you've sent out your third letter and you still haven't
heard from him, automatically turn his account over to a collection agency.
No one likes to be on a collection agency's list, and once your customer finds
out
that you will, indeed, turn his accounts over to an outside agency for
collection, he'll
quickly accept the fact that you're running a "tight ship," and not try to use
you for a soft
touch.
Be consistent in your collection procedures, and don't allow special favors. Set
up
a regular routine for collecting from past due accounts, and then stick with
that procedure.
Some of the things to keep in mind... Your collection letters should contain the
date, name/address of the debtor, a description of the merchandise involved or
the
services rendered, and the amount due. It's also a very good idea to include a
self-addressed reply envelope in order to make it easy for him to mail his
check.
In almost all cases, you should address your letter to a specific person, not to
either the purchasing department or the company in general. In
other words, you should endeavor to try to continue your relationship with the person who signed
authorization for the purchase in the first place. Your letters should be firm
but
reasonable, and should leave the debtor an opportunity to set up a schedule of
payments
or an honorable way out of his financial problems.
Telephone calls work very well in that they usually catch the "slow payer" off
guard, and can result in his promising to pay by or on a
certain date. The thing is
before you start calling on bad debts, be sure that you're thoroughly familiar
with his
account, and that you have his file in front of you when you make your call.
You or one of your agents might make a personal visit to see him and discuss the
reasons why he hasn't paid, but if he doesn't want to talk to you and orders you
off his
property, you must not argue or attempt to reason with him. The only thing you
can do in
such a situation is to leave without further words.
When you do visit the debtor and he offers a partial payment, by all means
accept
it. Start by demanding the whole amount, but be ready to accept whatever he
offers, and work out some sort of payment schedule from there. If you can't collect the
money, try
bartering -- in other words, trade the price of your bill for something he has
that you can
either use, sell or trade. Only as a last resort should you attempt to take back
the
merchandise you sold him.
One other thing, if he claims to have mailed you a check more than a few days
ago -- long enough for the check to have reached you -- demand that he stop
payment on it
and issue a new check. Above all else, keep cool and don't argue or become
threatening
towards him.
To get results, collection letters should be distinctive. Some companies use a
special letterhead printed in red ink which attracts the eye better than any
other color and
gets maximum attention. At the same time, a great many of the collection
agencies say
that smaller than standard sized paper, plus the use of paper that feels and
looks
expensive, always gets better results.
Never use humor in a collection letter. If you do, your recipient won't take
your
collection efforts seriously. Maintain a sense of urgency, but don't imply that
you're
angry -- serious, yes -- but angry, no. The psychology behind the tone of your
collection
letters is simply that the recipient tends to duplicate it.
You should send out your letters over planned intervals -- about once every 10
days or two weeks. This will work in your favor because when several creditors
are on a
debtor's heels, he generally responds the fastest to whoever is the most
insistent.
Be sure you don't ever defame a debtor in writing. To do so will give him a
chance to "hang you" for libel. To always make sure you're within your legal
rights when
trying to collect a bad debt, keep these rules in mind!
Address yourself only to the person responsible for the bill that's owed.
Send your collection letters in sealed envelopes to ensure that other people
don't
see them.
When phoning him or her, don't discuss the nature of the call with anyone else.
Don't attack him personally, even if what you say about him is true.
It's okay to disclose the next step in your collection efforts -- you're going to
turn
his account over to a collection agency, or to take him to court -- but don't
describe what
will happen to him if he doesn't pay.
And finally, always make it as easy as possible for a bad debtor to pay up.
"Bad debts" can be collected but it takes a
planned
collection procedure and tenacity to pull the trick. The best of luck to
you! |
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