Credit management in business to control bad debts is very similar to football – subject to rules.
In football, rules are administered by a referee who deals out the consequences for breaking those rules to the offending player or players in a format similar to debt recovery:-
• A verbal warning that escalates to.
• A yellow card, that escalates to.
• A red card and sending off.
I suggest, as business owners, in order to reduce bad debt you use a similar format.
At Master Collections we offer a letter cycle to our Master Club members that consists of three letters:-
• Letter One. A polite reminder the account is outstanding, that escalates to.
• A Late Payment Notice, that escalates to.
• A Final Demand.
In fact Master Collections offer our Master Club members the equivalent to or as near to a red card in the form of a Red Master Club rubber stamp they can print on an outstanding invoice or invoices or Statement of Account.
Fear of Upsetting your Customers
In my line of business from time to time I get approached by clients that say, “Carlo, we don’t want to upset our customers.”
What I say to them is what I will share with you now and the football fans reading this will appreciate my analogy.
What would a football game look like if it wasn’t refereed? It would be chaos, it might be fun to watch for a while but in the main it would be no fun at all.
The point I’m making is football managers, players and fans expect games to be refereed in the same way your customers expect you to manage their account.
Let them know when the account is outstanding and what the consequences are for allowing the account to be outstanding. If you don’t you will upset them.
Sure just like in football you will have customers upset with your decisions but providing their complaint has no merit and all it serves to do is make a nuisance of themselves just like referees in football games escalate to the next stage in your process. Stand up to those customers.
Telephone Debt Collection. Does it Work ?
From time to time in my business I also get approached by clients that say to me ‘Carlo, we’re a friendly business we don’t like letters they’re too formal we like to speak to our customers’.
I have no problem with telephone calls as long as they are manageable. Consider this do you have the name of the individual responsible for ensuring your account is paid on time do you have their telephone number.
An appropriately worded Credit Application Form will acquire those details. Master Collections supply our Master Club members a Credit Application Form we recommend they invite customers seeking credit, complete.
Consider Your Business Clientele or Customer
For example, if your client base are hairdressing salons nine times out of ten the owner or owners will be the same hairdresser or hairdressers working on the shop floor, they will not have time to speak to you.
Ensure telephone calls are manageable because if they are not, it would look no different to a football game where the referee does not escalate his or her decisions.
Doesn’t book players, doesn’t send players off, football players would get away with murder. Do not make that mistake in your business. Escalate to accumulate.
Make Credit Control Easy For Your Business
There are lot of businesses that make credit control difficult when it’s not that difficult it’s quite simple actually.
Credit Control is built on three elements
- Rules; and
- A referee in the form of a Credit Controller or Controllers who administer the rules; and
- Deliver the consequences of breaking the rules to the offending customer.
Depending on how your customers reacts to those elements, you need to consider, for example, a Dispute or Query Management process which might involve referring the account to your customer service department to resolve the dispute or another individual in the business qualified to resolve the dispute.
Once the dispute is resolved if the customer does not respect the resolution, don’t delay escalate to the next stage in your process.
Alternatively you may have customers that react to the elements by saying they can’t afford to pay or settle the account because they’re suffering financial difficulty.
In this case you need to consider a Payment Plan process. That might involve an Income and Expense form you invite your customer to complete so you can assess what payment plan you are happy to offer.
Or you may offer as standard a three month payment plan. If your customer does not complete and return the Income and Expense Form within the time you’ve asked them to or does not agree to your Payment Plan (or defaults on the plan), don’t delay.
Escalate to the next stage in your process. Escalate to accumulate.
Do not Make Idle Threats
Some customers may be stubborn or deliberately test your resolve. So be sure when you threaten referral to a Debt Collection Agency if the account is not settled, you deliver on the same, likewise if you threaten the issue of legal proceedings, you deliver on the same.
Master Collections offers two debt collection services. Debt Collection Master is designed to collect debts on a no-collection, no-fee basis and an all encompassing credit management service called Master Club, which is designed to cover every element of credit control for solvent accounts.
Master Club membership is the only membership on the market that provides enforcement cover and subject to defended matters legal cover all inclusive.
Master Collections save its members thousands of pounds each year on legal and enforcement costs, putting them in an excellent position to overcome challenges presented by stubborn debtors. As a result our members reduce their bad debts.
Carlo Pegna FCILEx, MCICM
Legal Manager and Director
- Are you owed money?
- Do you have a debt that needs chasing?
- Want to find out more?
Call award-winning credit professional and commercial lawyer Carlo Pegna on 01920 481467 to find out what Master Collections can do for your business.