Commercial Collections Strategy with Tactical Intent

Today, we are going to talk about your collections strategy and ensuring your collections treatment is effective and efficient.

Payment Terms

This is the net terms on the account that you can expect to receive payment from your customer. This is an area glossed over far too often in the customer onboarding process. Historically, businesses have used "default" net 30 payment terms: 30 days from the date of the invoice, payment is due. This was the standard for most businesses prior to the recession in 2008. Many businesses tightened their default terms and how they extended credit. In my collections strategy workshop, I talk a lot about the art of collections. After attending our strategy workshop, I'm confident that you will look at the collections department and processes entirely differently. You will learn how to run credit and collections in a strong economy and how to quickly adapt to a weaker economy. Payment terms are the key ingredient to a successful collection strategy and here is why.

Controllable Strikes

Strikes are missed opportunities with your customers. Start (or continue) reiterating to your sales force how customers give us controllable strikes -- strikes that don't hit the company as a surprise or, in the best-case scenario, can be avoided entirely. Depending on the customer, you may get one strike or maybe they are really nice and give you three. Strikes are also reasons for a customer to stop working with you early in the relationship. Let me show you how it relates back to payment terms.

• The invoice payment terms aren't appropriate for the customer's process.
• Week 1: Brian in the warehouse has to sign off on all invoices.
• Week 2: Suzy in operations reviews Brian's notes and invoices prior to sending to accounting.
• Week 3: Accounting reviews the bills and e-mails them electronically to corporate for processing.
• Week 4-5: The CFO cuts check every other Thursday and mails payment.

• Phone rings to Accounting. It's your collector calling for the status of the payment.
• Strike 1. You didn't ask the customer what their process was once the bill is received. It's very clear to see based on their process, you couldn't possibly have their payment on net 30. They are agitated because someone just had to answer your collectors call unnecessarily.
• Strike 2. Remember the door that was ordered in the wrong size.
• Strike 3. While they are on the phone with your collector they also notice, pricing on the invoice wasn't what was promised.

If you are lucky, maybe you get a foul ball instead of the strike, but look how fast you can lose that customer. Payment terms are a controllable strike that you can save by teaching this to everyone in your organization involved with bringing on new business.

Best Customer Experience

Multiple studies show that customers are more loyal to companies that give them the best customer experience. How your collector interacts with the customers is a part of their overall experience with you as a company. If your collectors are calling your customers when they aren't really past due, the collector will hear the customer's thoughts on that call.

As an organization, your employees are your customers as well. Is your collector as driven in their day to day, if they are getting scolded by customers that aren't really past due? In making sure this is the best experience for your customers, you are improving your employee's experience as well.

Most collectors have KPI's (key performance indicators) and are motivated (sometimes additionally compensated) for hitting their goals. All employees want minimal roadblocks in achieving their KPIs. Let's set both the customers and the collectors up for success!

Time is money

Your collector calling a customer that didn't need to be called is a waste of both their time and the organization's money. A collector is going to look at their coded accounts and if payment terms aren't discussed on the front end, they will struggle to prioritize. Think about that, they can't tell from looking at their worklist who is correctly reflecting past due and who is inaccurately reflecting past due. They will spend more wasted time shifting through making phone calls. Some of those calls accurately reflecting past due and other customers getting more frustrated with their unnecessary calls. If the collector could look at their worklist with confidence, they would know all the past due customers were accurate.

Don't lose sight of the domino effect here. If the customers don't have the right payment terms, your cash forecasts and projections won't be correct. Your DSO will show poorly, AR aging won't reflect the correct picture, and it will impact your financials.

It's never too late

• Historically, how many days past due is the customer paying today? If the customer has net 14 terms and historically is paying 30 days past due, they really need net 45 terms.
• Your collectors next phone call:

• "Hello Mr./Mrs. Customer, I was reviewing your account prior to calling today. I noticed that historically your payment has posted 30 days past the due date. Can you walk me through your internal process?"
• "Understood, let me review these notes with my manager and see what new payment terms and options we have for you. We want to see you continue maximizing your discounts through us and show in good payment standing."
• "Lastly, if I'm able to make this change in our system for you I need your commitment that you won't change your process today. We want to set you up for success, and the only way to accomplish that is if we have your companies commitment to maintaining your current process. You can still expect to receive calls from me from time to time before a scheduled vacation, holiday, etc."

• Once the change is approved, follow back up with the customer. Set clear expectations.

• "This week's invoice won't reflect the change. However, starting next week the new payment terms will be reflected. As I said continue processing our invoices on your end the same way, and the account will remain in good standing."
• "You can still expect to receive calls from me from time to time before a scheduled vacation, holiday, etc. This ensures we don't get off track with payments with those scheduled interruptions."

Payment terms are so important to the success of our organization, customers, and employees. Customers will appreciate you taking the time to understand their processes and being adaptable to collaborating on agreed terms that work for both companies. Collectors can now effectively and efficiently work on their past-due customers and with a positive attitude. You are giving your customers the best customer experience, and happy customers are sticky customers. Trust me, there will still be uncontrollable strikes that happen from time to time. But your customer won't be adding unnecessary phone calls, collection letters, etc. when they do. The customer is more likely to shrug it off, no business is perfect but I really enjoy working with the company! Sticky customers today, plus new sticky customers tomorrow equals compounded revenue and growth for your organization's future!

I hope you see purposeful decision-making throughout the steps mentioned above. Feel free to reach out to me via email at keich@theiainstitute.com.