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27 debt rules

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Here are some initial tips to help you with a problem payer:

1. Know all details about a debtor.

2. Approach a debtor with confidence.

3. Introduce yourself and be business-like, courteous and natural.

4. Encourage answers by remaining silent at times.

5. Listen carefully and adapt your approach accordingly.

6. Convey a sense of urgency by making deadlines.

7. Be fully committed to the payment-in-full strategy.

8. When a payment plan is proposed, the debtor’s initial offer should always be refused. Confirm the outcome in writing by letter, fax or email.

9. Keep calm and cheerful no matter how rude the debtor may become.

10. Let the debtor know that you want to be fair.

When you run a business, the role of debt collector usually falls into the hands of the owner. This is the time when you need to consider if it’s worth your while spending your time on doing these types of jobs.

Consider bringing in a bookkeeper once a week to do your books and get them to chase up payments for you. They’re more removed from the client and can be less emotional when asking for payment.
What you, or whoever collects the debts, need to remember are some simple rules:

11. Be assertive.

12. Be confident about their ability to control the telephone conversation.

13. Firmly believe your business is fair and ethical.

14. Use language that’s easily understood.

15. Have the capacity to think on your feet.

16. Be able to read and motivate your debtors to a positive outcome.

17. Be a good listener.

18. Have good telephone skills such as speaking clearly and at a moderate speed. 

Your debtor will pay you when their motivation for paying becomes stronger than their reason to not pay. That motivation can arise from guilt, anxiety, fear – this could be, for example, financial loss, loss of reputation, legal action or desire for more credit.

Your role as the telephone collector is to combine these motivators where it appeals to the debtors honesty, integrity, pride, fears, anxiety. This can be done with motivational statements such as:
  • “Show your good faith by paying the account today”
  • “I know you live up to your responsibilities.”

To start with, gain information by keeping your ears open and your mouth closed. When the debtor indicates why the payment hasn’t been made, an indication of how the account can be resolved. Here are typical debtors:

  • Clients who settle on the first demand.
  • Clients who’ll enter an arrangement to pay.
  • Those who may have a grievance (that’s needs to be resolved quickly).
  • Stallers who employ a whole range of tactics.
  • Debtors who refuse to pay but who can be motivated to pay (call their bluff).
  • Debtors who refuse to pay and can’t be motivated to pay (Hardship situations or those who shouldn’t have been granted credit in the first place). 
The power of the psychological pause

As a professional speaker I’m a great believer in the power of the pause. And it should work for you. This is the part of the conversation where you put the burden of conversation on the debtor. For example: “I need your payment no later than Friday”.

Then pause.

You don’t need to say another word because you’re actually applying pressure in the most powerful way through silence. The temptation is for both parties to break that silence.

If the collector opens their mouth first, they let the debtor off the hook. If the client opens their mouth first, they’re very likely to give an undertaking to pay or give a clue as to how the payment can be made.

Collecting what’s yours

We’ve all heard it from customers who owe us money. Their payment is very late. They ask for a credit extension. The cheque’s in the mail and when it does arrive it’s a partial-payment or they change their buying patterns.

These are all signs of problems for you getting your money. Sometimes the excuse is genuine, but how do you know when you don’t have access to the customer’s financial records?

To keep the lines of communication open, talk to your customers and do that early on in the process. Debts unfortunately are not like wine. They don’t get better with age.

I recommend you get your credit and sales people talking to each other. For instance, have your sales staff note other suppliers’ goods and services when calling on the customer. Instigate an immediate credit check.

Visit the business premises

Most businesses would not think twice about visiting a customer in an attempt to gain a sale. But it is an entirely different matter, when the visit is to talk about a debt. This shouldn’t be the case.

For larger accounts, it is worth considering a field visit. It can be a means of gaining a useful insight into a customer’s affairs. It may alert you to signs of a poorly run business that may eventually fail. It can also help to build customer goodwill. It’s worthwhile bearing in mind too that it’s harder for the debtor to throw you out of their office.

In contrast, it’s much easier for the customer to throw up their hands and walk out of your office if you insist on meeting at your premises. The business to whom money is owed needs to determine if this strategy is called for. If the money is important to you, don’t overlook the need for a personal visit.

Credit checks

They’re not the be-all and end-all, but they can be a useful indicator of potential sources of credit that a customer may be seeking to tap into. Actions which are being instigated in respect of other situations of default would be recorded. Mercantile agencies can conduct more detailed investigations, if that’s what the business requires.

When it’s all bad news

If you’ve done your checks and the news is bad, what can you do about it?

Some handy steps for dealing with a bad situation:

19. Communication – talk to your client regularly and openly. Discuss the position. Seek an indication as to when payment can be expected.

20. It is important through this process to stay positive, but with a definite preparedness to act.

21. If an extension of time to pay is to be contemplated, it is often a good idea to get a signed agreement to pay interest.

22. If the decision is taken to stop supply, and that may well be necessary depending on the circumstances, then very close liaison between your own credit personnel and the credit function within the business is essential.

23. Review all the documentation that the business has evidencing the debt. Is it complete? This is important if legal action is being contemplated.

24. Try to find out whether that customer is able to pay. There is no point spending money on legal proceedings, if there are no assets.

25. Place the customer on a direct debit arrangement if a payment plan is accepted, bearing in mind that the strategy should always be to try and obtain payment in full.

26. If a progressive series of payments is to be accepted, the customer’s initial offer is seldom their best.

27. Finally, the question of security needs to be examined. This could be director’s guarantee. It might be a registered second or third mortgage, or best of all, a bank guarantee.

If you’re looking to work on your business rather than being stuck in it, book in for a complimentary business assessment today with Switzer Business Coaching

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Monday, August 15, 2011

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