Disclaimer: The content of these articles is to be used as a general guide only. Professional advice should be sought before taking any action relating to the points discussed in these articles.

THE  COLLECTION  PLAN

  When devising a method of collecting accounts you need to consider three things:

1. Collect the money as quickly as possible.

2. Minimise the cost of collection.

3. Encourage future sales.

  Some people place too much emphasis on collecting the money, often to the detriment of the cost of collection and the future relationship your company has with those debtors.  The major cost of collection is usually labour and procedures should be in place to minimise the time taken by your staff to collect your money.
  Every contact you have with your customer affects the relationship with that customer.  The more lenient you are in collecting your money, the greater the benefit to your customer and the greater the likelihood of future sales.  But being too lenient can cause cash flow problems for your business.  The best way to overcome this dilemma is to get to know your customers.
  Ideally, you should have a collection plan for every customer but this is only possible if you have a small number of debtors.  As a general rule of thumb you can usually afford to be lenient with long term customers while you should be stricter with newer customers.
  I recommend a lenient credit policy but only if your business can sustain it.  If you already have a large overdraft and are paying considerable interest payments then you would obviously be less inclined to have a lenient credit policy.  However, future sales should not be sacrificed for early payment.  Any additional interest payments are likely to be well worth it to keep a profitable customer happy.
  The size of the account also affects your credit policy.  It is far easier to be lenient with slow payers if the amount owing is only small.
  Below is a collection plan that I use and would recommend in cases where a lenient credit policy is justified.

1. Invoice with 30 day sticker.

2. Statement at end of month with thank you sticker.

3. 30 days - Statement with early reminder sticker.

4. 45 days - Friendly collection card (not sent to those whom I expect to pay shortly).

5. 60 days - Statement with query sticker.

6. 75 days - First phone call.

7. 83 days - Follow up some debtors by phone, mainly those I could not contact at 75 days.

8. 90 days - Follow up some debtors by phone or statement with a pressure to pay sticker.

9. 98 days - Follow up some debtors by phone.

10. 105 days - Follow up some debtors by phone.

11. 113 days - Follow up some debtors by phone.

12. 120 days - Final Notice sticker (wait if payment is expected shortly).  Do not make a threat if you do not intend to carry it out.

13. 135 days - Final Notice collection card.

14. 150 days - Court Summons.

The above collection plan does work as only a very small number of our accounts are written off or taken to court.  Also, only a small percentage of our accounts reach 75 days.  This is important since when you start to telephone your customers, the cost of collection increases dramatically.
  When calling your customers, record details of the conversation and attempt to get a promise to pay.  In particular, make a note of who you were speaking to in case you need to contact that person again.  Try to keep the calls short and if the person is not there, then leave a message even if it is on voice mail or on an answering machine.  Often this is all you need to do to get paid.
  A week later, follow up those calls that weren't returned.  At 90 days, either send a statement with a pressure to pay sticker on it or follow up on the first phone call.  What you do here depends on what was promised to you during the initial telephone call.
  Always send statements on the second day of the month at the earliest so you can throw out or adjust the statements of those debtors who have paid in full or in part.  Using a variety of stickers also helps to surprise your debtor and makes your statement stand out so it is more likely your account is placed on the top of the pile and is paid first.  Remember, you are competing with your customer's other creditors for payment of your account.  Give your customer a reason to pay you first.
  Once your customer's account is overdue, it is preferable to keep in contact with your customer at least twice a month.  This is why we use collection cards at 45 days.  It also has the advantage of looking like a greeting card as it is sent in a plain envelope.
  The above credit policy is a very lenient one.  I would not recommend anything more lenient than this unless it is standard practice in your industry.
  One of the most important parts of account collection is to be organised.  Have a plan     even if it is entirely different from mine.  Other collection vehicles include standard letters, individual letters, post-it notes, rubber stamps and computer messages on statements, faxes, emails and even visiting the debtor in person.

This article is reprinted from Rentons' Business Tips No. 8
© Copyright May 2000 ACS