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Trim bad debts before they hurt

THEY say that one-third of people pay because it's the right thing to do. One-third pays only if they know you are watching them. And one-third pays only if they know they will be whacked if they don't pay. In collections, sometimes it feels like there are few people who pay because they believe it's the right thing to do.

That's unfortunate because we should appreciate our customers who pay on time. Instead, most companies focus on getting new customers and preventing existing customers from going bad. Existing good paying customers are ignored.

They don't get any special promotions, offers, or deals.

The best way to prevent future collection problems is to proactively minimize the chances of them happening in the first place. Here are some ways to minimize ever having a collection problem.

1. Reward your prompt paymasters. Some companies give award points. Others give future discounts or faster service for their prompt paymasters. Others give lower prices or freebies. Some multinationals know when large, prompt paying customers call them. Their telephone numbers are recognized by the PABX and these good customer calls `jump queue' to speak to the next available agent. Or they speak with the organisation's top, best-trained agents.

Whatever you do, ensure your prompt paymasters are not taken for granted. If you don't take care of your good customers, someone else will.

2. Clear and prompt billing process. Many organisations provide a top-rate product or service with excellent customer service, but they are destroyed by a slow or inaccurate billing process. Ensure your organisation sends out understandable bills. I saw one organisation whose bills had a confusing format. It read:

Overdue balance Rm200.00

Current balance RM200.00

Total balance RM400.00

Due by 1 July

Customers didn't know if RM400 was due by 1 July or only the overdue. Some customers were taking advantage of the illogical bill to withhold payment for months because they were simply following the instructions on each month's bill.

Instead, the bill should have read:

Overdue balance RM200.00

Current balance RM200.00

Total balance RM400.00

Due NOW! Due by 1 July

The billing process includes more than just generating understandable bills. It also involves ensuring the bills are generated promptly. It hurts organisations customer satisfaction levels if it takes 30 days to generate a bill, then the customer is asked to make immediate payment. No way will customers pay so quickly. The fastest way to reduce the number of days it takes your customers to pay you is to reduce the number of days it takes to bill your customers.

A little considered part of the billing process, that has great importance, is what do you do if the bills you send out come back marked `Return to Sender'? Some organisations have mounds of returned customer correspondence and bills. And most departments can think of a 101 things to do before having to process those returned bills. It might not be a fun job, but it's important. Returned bills - or any customer correspondence for that matter - is an early warning flag of a possible future collection problem. You need to ensure the matter is attacked early.

If you are able to contact customers and they are evasive about the returned mail, then consider reducing their credit lines or cutting them immediately until a site visit can be taken, or until you feel comfortable with their explanation. This is especially true for new customers your company has just extended credit.

Often good customers can become bad customers due to an unresolved billing error or service/product dispute. Like tooth cavities, they start off small and develop into painful problems. When people withhold payment due to disputes it hurts your organisation's cash flow. It also hurts your customer satisfaction index.

Eventually it will hurt your future sales. Ensure your people are empowered to resolve disputes immediately. Refunding a little money now to preserve a good customer's business is better than delaying the refund and ruining the relationship.

3. Make it easy to pay. Does your organisation make it easy for customers to pay? Or, do you offer limited payment options? Recently my family needed a new dentist. So I visited one near my house. I needed to buy a mouth guard. When I told him my need, the first thing he said was, "That will be RM400, please pay now." I explained that I didn't have RM400 cash in my pocket now. Could I pay later? He said, "No." Could I pay half RM200 now with the cash in my pocket and RM200 when the mouth guard is done?

"No." Could I pay by credit card? "No."

Visiting a dentist is tough enough, but why make it even more difficult? What would you do? For me I decided to walk a few shop down and visit another dentist who was easier to do business with. He now has my family's business. Who knows? Maybe the second dentist's prices are even higher, but he makes it easy to do business with him. Price isn't the only factor if you want to get and keep customers' business.

Some companies have a myriad of payment options: direct debit, e-commerce, payment agents, direct debit, call with a credit card, and others.

They understand. In the U.S. you can even pay by simply faxing a cheque.

Another way is by calling and reading the numbers at the bottom of the cheque. It's called `cheque-over-the-phone.'

If you want to minimize future collection problems and headaches, ensure you:

1. Reward prompt paymasters. Don't take them for granted.

2. Have an understandable billing process that resolves any disputes quickly

3. Make it easy for people to pay you by offering options.

* Steve Coyle is a Malaysia-based corporate trainer and author of the book Debt Collections: Stir-Fried or Deep-Fried? available at MPH bookstores. He can be contacted at

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