8 Strategies for Optimizing Your Internal Collection Process
/It is said that sales are gifts to the purchasers until they are paid.
Unpaid accounts create negative cash flow. In financial terms, the period of time it takes to collect accounts is known as Days Sales Outstanding or DSO. When DSO is high, cash flow is poor. Over time, having constrained resources as a result of poor cash flow affects much more than the financial performance of a business. It can also affect relationships with suppliers, increase stress and weigh on employee morale, and cause businesses to miss opportunities.
We know from our experience that late payers are not necessarily non-payers. We also know that there are several ways to optimize internal collections – starting before the purchase – to help reduce DSO, identify accounts that require the efforts of a professional collection agency, empower your staff, and make a positive impact on cash flow.
Here are eight strategies for optimizing your internal collection process and improving your cash flow.
1. Define a credit and collection policy.
Before a purchase is even made, it is helpful to develop a credit and collection policy that spells out a consistent process for extending if credit, if applicable, and collecting past-due accounts. When extending credit, this policy should, at a minimum, specify the credit evaluation process, identify who within the organization has the authority to extend credit, and set a credit limit.
The collection side of the policy should include a schedule of when to contact customers who are behind (see more in #6 below) as well as a telephone script and letters your staff will use to aid collection efforts. Two important aspects of a collection policy are knowing when to write an account off to bad debt and knowing when to turn it over to a collection agency to maximize recovery. Your policy should stipulate both.
Ideally, you would want to tie the policy to a specific metric, such as reducing DSO. Whichever metric is most important to your business, be sure to regularly monitor it and measure it against the goal.
2. Be consistent with invoices and statements
As Yogi Berra once said, “If you don’t know where you’re going, you’ll end up someplace else.” A consistent, systematic invoicing system keeps you focused on managing accounts receivables and keeps your customers focused on paying you. Including specific payment terms on each invoice will remind them that you expect to be paid on time. Adding your collection policy will help to increase the likelihood that your customers will pay their accounts on time.
3. Monitor payments from regular customers.
When you enter new customers into your accounting software or billing system, you have the opportunity to maintain accurate and timely records on their payment histories. This gives you a window from which you can see any changes from past payment patterns, such as slow payments, and indicates the need for early intervention.
4. Resolve bona fide issues quickly.
Mistakes happen. Denying an obvious billing error does not help to resolve outstanding invoices and could harm your business reputation. If the basis of non-payment stems from an issue with the quality of your product or service, open a dialogue to arrive at a mutually- agreeable settlement. This is especially helpful if a minor dissatisfaction is being used to withhold a substantial payment. It is fair and reasonable to request payment on the undisputed portion of the invoice immediately while working to resolve the disputed amount. This will not only help to collect payment; it will also help to restore customer relationships.
5. Support your collections staff.
Your collection staff, even experienced staff members, is subject to the fatigue that comes from regularly working with customers who are behind on their payments and having to continually negotiate promises for payment. When your staff understands their defined roles and specific responsibilities, as spelled out in your collection policy, it helps to alleviate their stress.
Your collection staff could also benefit from sales and customer service training. Not only are they charged with diplomatically “selling” your customers on making payment, but they are also charged with retaining customers who are able to pay. Whether on-site or online, professional development courses will help to provide your staff with the training and confidence they need to be effective.
6. Contact overdue accounts early and more frequently.
Your collection policy should clearly outline when customers with past-due accounts should be contacted, and you could have separate guidelines based on the amount due or the type of product or service purchased. An early call from a customer service representative or a reminder notice inquiring about payment will help uncover any possible payment objections while providing an opportunity to resolve these claims quickly. It's an excellent idea to contact late payers early and frequently, remembering that it can take several attempts to reach customers before contact is made.
7. Use Your Aging Sheet, Not Your Emotions
Unfortunately, your collection staff will not be able to collect every past-due account on their own. And for those accounts that require a third-party influence, it’s important to not let them age beyond the point of ever being collected. It’s not uncommon for a collection staff to hold onto an account because he or she "felt" the customer would pay eventually. The truth of the
matter is that if customers are expressing a desire to pay but are overextended, paying your bill has to become a priority to them. The sooner you can place them with an agency, the better.
8. Use Third Party Influence Earlier
If you've systematically pursued your past-due accounts for 45 to 60 days from the due date, it is likely you’ve requested payment four to six times and invested in staffing time to make phone calls and send letters. And within that 60-day period is exactly when you’ll see the most return on your investment of time and money. If you have not received payment by Day 60, it’s unlikely you will as the effectiveness of in-house collection efforts drops by 80%. The next natural step is to engage a professional third-party collection agency that has the tools and experience to resolve objections and secure payment.
When these best practices are applied consistently and effective, cash flow is impacted positively. And that’s a gift for every business person.
About Waterfall Revenue Group, Inc. – Worry-free debt resolution.
Waterfall Revenue Group, formerly The TRAF Group d/b/a A-1 Collection Service, is a woman-owned business. We offer a robust, flexible suite of services to clients in the healthcare, retail, commercial, and government markets. From first-party call center services operating in your name through a wide range of pre-collect and regular collection services, Waterfall Revenue Group offers an effective, proven alternative to writing off bad debt.
Utilizing our “Blueprint for Success,” we provide solutions that are designed to improve cash flow and customer and patient relationships. The leadership team at Waterfall Revenue Group has more than 30 years of earned collection experience. We embrace a positive philosophy about the services we provide — and it shows — in our results and in our client renewal rates.
Learn how we can help you maximize your cash flow strategies: contact us.
©2014, Waterfall Revenue Group (formerly the TRAF Group, Inc. d/b/a A-1 Collection Service) Attribution — If you would like to share or utilize this content, please give appropriate credit, provide a link to Waterfall Revenue Group, Inc. and indicate if changes were made. If you transform or build upon the materials, you may not distribute the modified material.