New Debt Calls

Businesses large and small can focus on what they do best by outsourcing non-core functions such as debt recovery.

Let’s face it, the topic of debt collection, while essential to most businesses is not a top of mind issue for most executives unless you are a Financial Controller or CFO or a business with a serious cash flow problem. It is not necessarily the most pleasant or interesting of topics to most. However, it is an essential reality to almost every business as it is crucial to financial health vis a vis cash flow, profits, and financial statements. Most industry segments have some degree of debt issues regardless of whether they are serving a consumer or business sector. This could range from slow payments made by clients to clients that don’t intend or simply can’t pay.

The good news is that most people operate under both implicit rules of fairness with respect to debts that they owe or they feel bound by specific contractual agreements regarding a purchase of a product or service. While it can be extraordinarily expensive to try to collect from people or companies that do not intend or cannot pay, it can be relatively inexpensive and straightforward to collect from those who just need a reminder or encouragement. Of course the best way to address the former crowd is to take precautionary measures, depending on the business you are in, to check credit in advance of a sale or to demand payment up front.

There is always a balance between making a sale and turning away a customer because you do not always know in advance who is going to pay and who will not and the balance in-between that take extra time to make payments. Some businesses, such as credit card companies, actually make more money off people who do not pay right away as interest and penalty payments add up quickly to make for a good profit and are worth some amount of risk. In fact there are some who believe that for certain industries that can charge for interest and late payments, the slower paying segment is the most attractive, highest valued customers and should receive the highest degree of service! Even in that case, it is important that customers pay regularly and with a reasonable amount of timeliness lest the debt slip to an un collectible state and have to be written off the books.

Assuming that most customers will pay eventually but may need some encouragement, what are the strategies a business can use to cost effectively ensure debt is being paid within the terms of the agreement between the business and its customer. Generally, the most effective first step is to send written notification to the customer as a reminder that a payment is due. There is decreasing effectiveness of sending a second reminder but many businesses often use that technique. For any online or commerce that involves electronic commerce over the Internet, email can be used. However, written notices on paper, while more expensive, may get more attention by the person or company owing the debt.

In any case, the next logical step before the debt is too “aged” is to have your business contact the customer directly. If the situation is a business-to-business arrangement for a very large debt owed, a call from the financial department responsible for collections first to the owing company’s financial department or purchasing organization is warranted. This can be followed by contact to the decision maker by either the collections department or, if required and typical by business custom, the original sales person. Indeed, many companies make some measure of debt collections part of the sales commission structure to ensure the timely payment of debt. If the situation is a small company, the best approach is still a personal contact by phone as the next step.

So what do you do if your business is like most businesses where the single debt is not necessarily huge and your business is not a small business? After the written notification, the call to the individual or business is still the best choice. If no payment is forthcoming, a second call or even third call will likely be required.

The process of making a telephone call to prompt for a payment is more straightforward than many might believe. However to do this efficiently for a large number of debtors, the process needs careful planning coupled with a connection of systems in the process to ensure that the right contact is being called, if a payment happens during the process – the contact is taken off the list, records are as up to date as possible, calls are being made at appropriate and most effective time of day, and that there is an opportunity for payment to made on the spot during the call. This can be a daunting and expensive task if it is tried for a large database of customers and done so with staff that are inexperienced and systems that are not efficient. You don’t want staff to spend a large amount of time trying to make calls that are not answered or go to answering machines otherwise it defeats the compelling financial reasons for going after the money in the first place.

There are a number of companies in the market that provide the specific service of debt collection. Based either on a fixed amount dependent on labor or on a variable amount depending on the amount collected, these service providers bring experience to the process. However, when it is done in a country with high labor rates such as Australia or US, the result is often a process that cannot be cost justified. As a result, a number of service providers in lower labor cost countries such as Philippines or India have arrived on the scene to provide an effective solution that matches experience, communications, and lower cost, so that businesses can more easily use telephone contact as the way to contact their customers regarding debt owed.

As with any offshore service provider, there are some great ones and some with a rather mixed record. Given the desire to succeed in both getting a payment as well as continue to keep a customer base active, it is important to balance cost with quality and experience to find the right partner in the process.

There may always be some percentage of customers who will only pay under extreme duress or action in court. For most businesses, the option to pursue this path is not worth the cost. The good news is that this is a minority of customers and most customers who do not pay right away will be pay eventually, especially if encouraged by personal contact made by telephone. The other good news is that businesses now have a cost effective way to go about that process through the use of offshore call centers specializing in the telephone stage of the debt collection process.
-- James Haensly

(James Haensly is the Vice President and co-founder of FooBooOnLine.com. James has more than 20 years experience working with enterprises and service providers to deliver business and communications solutions to help them increase revenue and profitability and reduce expense.)

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