The current unemployment level of 4.4% is around the lowest it has been since the months leading up to the financial crisis of 2008. This seem like great news. More Americans are working. More companies are expanding. The economy is growing, but growth can sometimes spell trouble for credit departments if is not handled correctly.
The calm before the storm
So this sounds great for all those businesses who are waiting for their accounts receivables to finally come in. They sold particular business goods on credit, trusting that they would be paid at a later date. With this increased revenue, businesses around the country should have the cash on hand to make good on their past debts and balance their books. Many creditors are happy now, and the debt collection business just became a bit easier.
However, this may only be temporary. Companies are growing, so they buy more goods from creditors and hire more employees to handle the load. What can happen, though, is that some businesses do not forecast their needs appropriately and tend to buy and hire more than necessary.
So instead of hiring the two workers that are ultimate needed, the business ends up hiring 4 or 5. Instead of buying x number of materials on credit, they buy 2x. This all has a way of working out in the short run, but when growth either slows or is not as large as was expected the bills start to pile up.
So sure, low unemployment numbers can be great – but just don’t let your customers get too ahead of themselves.
Small business owners typically find themselves wearing many hats. One day you may be the business best salesmen, the next you are worrying about how to pay for a new office space. One of the many jobs you may have to take on is that of debt collector. Its not a fun job, but being good at it can be very beneficial to your bottom line. Here are some tips to help you collect debt yourself.
Know what you are going to say
One of the biggest mistakes you can make is assuming you can just â€œwing it. Having a script and rehearsing it before hand allows you to have a confident demeanor and can go a long way to securing payment.
Keep it short and sweet
You do not need to give a long winded explantation about why you need to get paid. A short, well rehearsed, and confident message will let your customer know you expect to be paid and thats the end of it.
Be well informed
You should know as much as you can about the account before you make the call. Do they have a history of late payment? Are there any extenuating circumstances you should be aware of? You should also view everything in context. If they work in an industry that has been hit hard economically, you may have to settle for less in the end.
Do not let a customer make empty promises just to get you off the phone. If they claim the person you need to speak to is out of the office, find out when they will be back and call then. If they promise to pay but end up delaying, give them a call back. Maintaining your persistence will show you are serious and serve as a continual reminder of the debt they owe.
There is no one size fits all solution to debt collection. Every customer will be different and sometimes you may have to make a change on the fly. With that being said, following these general guidelines will provide you with a good baseline to improve your collection skills.
Even with the best of intentions, credit professionals will still make mistakes. This is the price of doing business sometimes, but here are 7 mistakes that can be easily avoided with a little training and self discipline.
Mistake number 1:
Lack of a healthy dose of skepticism. Some of the best credit professionals rarely believe their customers. This is not a knock against their customers or a sign of trust issues. It is simply part of their job to question everything in order to make the best decision possible.
Mistake number 2:
With that being said, mistake number two is failing to realize risk is part of the game. Even if you question everything, extending credit is not an exact science. You will never know for certain if your customer will pay. Sometimes the only way to make money is to take calculated risk.
Mistake Number 3:
Failure to see the warning signs. Keep your eyes and ears open for the flags that say â€˜Troubleâ€™.
Mistake Number 4:
Settling for the customers proposed payment plan. Negotiation is almostÂ always an option.
Mistake Number 5:
Failure to view time as the enemy.Â The more time that passes, the harder it will be to collect. Sometimes you have to know when to give up and turn the account over to collections
Mistake Number 6:
Accepting the customer at their word. While its great to hear the customer say they are going to pay, it is even better to get that in writing.
Mistake Number 7:
Assuming that your company is the only company your customer owes money to. In many cases this customer may be receiving multiple phones calls a day about their outstanding credit. You need to make yourself noticed in this crowd.
What are some mistakes you see your credit professionals making?
Many companies will begin to experience the typical summer slowdown as consumers spending habits are disrupted by the summer heat and activities. Of course, seasonal business such as pool supply stores and beach hotels will not feel this summer slump, but many business will see the summer months hurt their bottom line. Here are some good ways to save money and use the added free time to improve your business:
Reduce your inventory
If you typically see customer demand wilting in the summer heat, now may be the time reduce your stock on hand. This not only prevents lost revenue but can also make your business more flexible moving into the busy fall shopping season.
Adjust your schedule
Air conditioning cost can skyrocket during the warm summer months. If it is possible, you should consider shifting any heavy electronics use to the morning and evening when it is cooler outside. Opening some windows or bringing in some fans can also help quell the mid day heat without breaking the bank.
While this will vary widely depending on your business, it is often beneficial to run summer deals in order to increase sales and traffic to your business.
Use your extra time wisely
If you have extra time due to a summer slow down, try to be productive and plan for the future. Make a list of things you want to accomplish and go at it. This can be a great time to look at a long run view of your business. Maybe that means learning a new skill that you think will come in handy later down the rode or maybe you think it is time to increase your online presence. This can also just be a great time to get organized and cleaned up. Whatever you decide to do, do not waste this valuable time.
Does your business slow down during the summer? What do you do to prepare?
Even the best of us can get caught up in the heat of a conversation. Dealing with customers who refuse to pay their bills can be a very frustrating job, but here are four things that no customer wants to hear.
Using the term â€œHave toâ€
No customer wants to be told what to do. It is important to be firm on your position and make the customer know where you stand, but demanding a customer do something rarely compels them to change their mind. Call it human pride, but people want to feel like they have a choice and are complying on their own accord, not because they have to. An alternative to this would be to give your customer different options of what they can do. Even if all these options are similar or equally harsh, giving the customer a choice always helps.
Anything that suggests you or bored or do not care.
This may be your 100th call of the day, but to your customers it is their livelihoods. It is important they feel like you care and are not simply trying to get paid. A little compassion can sometimes go a long way.
Using the term â€œpolicyâ€
Nothing will annoy a customer more than if you say â€œwell I wish I can do that, but its against our policyâ€. It sounds like you are giving them the run-a-round and do not really care. Always try to offer alternatives and focus on what you can do for them. Try to make it seem like you are on their team and are fighting for them as much as you can.
Yelling or taking out your frustration on them
Getting angry and screaming at a customer almost never helps. While a customer may frustrate you, it is always important to keep a level head and work with them. Yelling and screaming will simply impede or ruin any progress that has been made on the account. You should remain firm and professional in your conversations, whether that be over email, on the phone, or in person.
Obviously there is not a one size fits all policy when it comes to collecting debt and in some cases these tactics may be necessary, but overall these practices should be avoided. It is almost always better to work with your customer than against them.
Most people have heard of the 5 Câ€™s of credit. The 5 Câ€™s encapsulate the most important factors to consider when deciding whether to grant credit to a customer or not.
Before examining the financial side of the equation, it is always important to take a set back and think about what type of person this client is. Morally speaking, do they appear to be the type of person that will pay? If you are willing to extend credit to a customer, you should know them well enough to be able to answer that question.
The next step is to determine if they even have the financial ability to pay for the good or services. Even if their heart is in the right place, some businesses simply do not have the capacity to pay. Â In this case, you should find out how profitable the company is and whether they are in a sound long-term financial situation.
Does it appear that the applicant has financial strength measured by net worth or equity?
If the client is unable to pay, do they own assets that could cover any unpaid debts. This could be in the form of machinery, inventory, property, or any other asset of value. You should also make sure that the assets being considered for use as collateral are not being used to cover an existing loan.
Does it appear that current economic or industry conditions will affect your applicant favorably? While past performance and metrics can paint an almost complete picture, you must also look forward to see how changing economic conditions could affect the business moving forward. Will they be able to pay 6 months or a year from now?
Obviously there are plenty of other factors to consider when considering to grant credit, but the 5 Câ€™s provide a baseline guide to get the ball rolling.
What is your export potential for your business? Can you export your product? If so, what are the regulations? The questions are many!
To get a handle on the aspects of foreign trade, we encourage you to check out the International Trade Administrationâ€™s YouTube channel.
Youâ€™ll find short videos from foreign regulations to export counseling including this one weâ€™re featuring here:
Starting a new business is both exciting and daunting! The list of things to do feels endless and endlessly growing. From writing a business plan to registering the name and getting licenses, youâ€™re on the go and in constant motion. And constantly learning!
The SBA.Gov website is a wealth of information for business owners just starting out. Their 10 Steps To Starting A Business article is a fabulous place to begin research.
Not only will you find instruction on how to finance your business and how to pick a location, but the article includes resources for those who want a home-based business, online business, a veteran or woman owned business and more.
As another valuable read, download our How To Extend Business Credit handbook. In it youâ€™ll find sources for credit information, the legalities of investigation, establishing credit terms and how to evaluate the risks of extending credit.
As an added bonus, youâ€™ll find credit application free for your use as well as an internal worksheet checklist to help you cover all your bases on credit applications. Itâ€™s free to download and share.
Itâ€™s tougher than ever to get through to a live voice on the phone. Caller ID and voice mail make it easy for people to screen calls or ignore them in lieu of a more convenient time. And getting a return call? Donâ€™t hold your breath.
For collectors, that challenge is magnified ten-fold.
Communication specialists recommend all kinds of creative strategies to get a phone call returned. Of course, thereâ€™s no sure-fire solution and in fact, one idea we heard recently struck us as simply wrong: Leaving a bogus message that states that youâ€™re returning their call.
Put yourself in the customerâ€™s shoes for a minute. Youâ€™re extremely busy. You hear that message and assume that, because you canâ€™t remember, you must have placed a call to this person as the message states. You spend the next 5 or 10 minutes racking your brain and flipping through notes trying to remember this person and why you called them.
When you do finally return the call, you realize youâ€™ve been tricked. So not only have you wasted time trying to remember the initial phone call that never happened, now youâ€™re caught off guard in a clear deception.
As the customer, are you going to feel any desire whatsoever to work with this collector?
Absolutely not. In reality, youâ€™re more likely to put that bill at the bottom of the stack out of sheer anger and frustration.
No one ever says to a collector, â€œOh! Iâ€™m SO glad you called!â€ By nature, these calls are adversarial. Therefore, collectors must find a way to overcome the negative stereotypes in order to make headway on the debt. Trickery and deception build walls and make the task far more difficult.
Donâ€™t do it. No matter how many messages you have to leave for a delinquent customer, be truthful.
Most industries are feeling the squeeze. â€œDownsizingâ€ is the new buzzword that describes what many face: More work with fewer hands to do it. Itâ€™s no wonder so many feel overwhelmed at work.
Working efficiently should be part of our work ethic whether youâ€™re a victim of downsizing or not. But if you are in the throws of a smaller work force, learning to make the most of your time is more critical than ever.
For collection professionals, prioritizing is a must with or without an economic squeeze. Given the enormity of the many details collectors manage, itâ€™s important not to become entangled in the minutia at the risk of losing sight of the big picture.
For that reason, an over simplified snapshot is helpful when prioritizing a day or a weekâ€™s worth of work.
The critical tasks come first: collections, credit approvals, cash applications. These are the meat and potatoes that affect operations and/or the bottom line.
It comes down to separating the critical tasks from the non-critical ones. If a task doesnâ€™t impact the bottom line, consider it non-critical. That doesnâ€™t mean it doesnâ€™t get done at all. It just isnâ€™t at the top of the list.
If youâ€™re in a position to delegate, do so. Learning this skill can save your neck if your workload is more than one person can reasonably manage. Itâ€™s surprising the number of people in management positions who struggle with delegating responsibilities.
Peace of mind comes with delegating to the right person. Once youâ€™ve placed your trust in someone to take over a task or series of tasks, let it go and let them run with it. Make yourself available to them but keep your hands off.