Corporate Debt Collection Procedures: A Step by Step Guide
The following is an example of a collection notice that should be sent when the debt is approximately 30 days delinquent:
Thank you for your recent purchase. Our records indicate payment has not yet been received for the enclosed invoice(s). Please take a moment to review your records.
If you have any questions, please do not hesitate to contact our office. We will be happy to answer any questions you may have.
We appreciate your prompt attention to this matter.
If you haven't heard from the recipient of the letter within five business days, a phone call should be made. Speak only to the person responsible for paying the debt. If that person is not available, leave a message with your name, position, and contact information. NEVER DIVULGE THE REASON OF YOUR CALL TO A THIRD PARTY
Once you contact the person responsible for the debt, remember to keep the tone casual. The initial call should be for the purpose of obtaining information. Ensure that there are no problems with the merchandise, or service received. Take notes throughout the course of the conversation. These notes should include the date of call, who was contacted, and the date payment was promised.
The following is an example of the initial collection call that should be made:
"Hello, this is Samantha with Premium Collections. I'm calling in regards to your invoice number F140. We have not yet received your payment. Can you tell me when you may be able to pay?"
ALLOW THEM AN OPPORTUNITY TO SPEAK. Then, follow with, "Thank you for your time. I'll make a note of the payment date, and look forward to seeing you soon."
As you can see, there was nothing threatening about this phone call. It simply serves as a courtesy, and lets the customer know that the debt has not gone unnoticed.
Unfortunately, not all debtors will pay after this first notice. It is quite likely that you will need to make another phone call and/or correspondence connection. Still, remain cordial. There are many reasons why a debt will remain unpaid. It is imperative that you verify that there is no error on your, or your company's part. Verify that the debt remains unpaid, speak with the salesman involved in the transaction, and any sub-contractors that may have played a part in the transaction. Verify that all work has been completed and that the service was satisfactory. Once you are certain that there are no loose ends, contact the customer again regarding the debt.
The second collection call should occur five days after the scheduled payment date, as it is common courtesy to extend a five day grace period. After that time, again, contact the person responsible for paying the debt.
The following is an example of the second collection call:
" Hello. This is Samantha with Premium Collections. I'm calling in regards to your balance of £ 5,000.00 that has recently gone past due. When we spoke on May 10, 2011, I was told a payment would be mailed. Can you confirm if payment was sent?"
LET THEM SPEAK.
Then, politely thank them for their assistance. Do not hang up the phone until a new payment date is arranged
. If your company accepts credit cards as a form of payment, alert the customer to this fact. Some customers will immediately make partial, of even full payment while they are on the phone. Remember to take notes during this phone conversation, as well.
If the debt still remains unpaid after 55 days, place the customer on credit hold if you have not already done so. Then, send a written correspondence alerting them to the fact that their charge privileges have been suspended.
The following is an example of the credit hold correspondence:
Several attempts have been made to collect your past due balance of £ 5,000.00. At this time, we have no option but to place your account on CREDIT HOLD.
Please contact our office at once to arrange a payment date. It is imperative that you do not ignore this request for payment.
Thank you in advance for your prompt attention
As you can see, the tone has shifted slightly. The cordiality is still present, but you're letting your customer know that you are serious about collecting the debt.
It is very common to become frustrated at this point, but it is extremely important that you follow a strict set of guidelines. The following practices should be avoided when making collection phone calls
, as they can be construed as harassment:
* Do not call at odd hours of the day or night. Calls should not be made after 10:00pm or before 7:00am.
* Do not make more than one call per week. The only exception to this is if you're following up on a scheduled payment.
* Never call a third party, except to locate the whereabouts of the debtor. Remember, do not divulge the purpose of the call.
* Do not threaten the debtor in any way.
* Do not allow more than one person to call for collection.
- Do not make false claims that legal action will be taken.
There are bargaining tools that can used in collecting a debt, even if it has aged past 60 days of delinquency. Here are a few ideas you can use to receive payment on a past due debt.
- Suggest that a percentage of the finance charges be removed from the account
. For example you could say the following. "We would like to help you in any way possible to clear this debt. If you can payment on your account today, we would be willing to remove half of the service charges accrued on the account." BE FLEXIBLE
. You want to make every effort possible to get this amount on your own, without having to pay for a lawyer, collection agency, or even Small Claims Court costs.
- Come up with a payment plan that both parties can agree
on. For example you could say the following. "We understand that it may difficult to pay the full amount all at once. We would like to help you clear this debt, by extending a payment schedule." Make it clear that payment would have to be received monthly by a specific date. It's a good idea to type up a rough contract and have the debtor and the creditor sign the agreement. Again, BE FLEXIBLE. It's better to get a small amount each month than nothing at all.
If you have exhausted all efforts, and still have been unable to collect the debt, send out a final notice. This correspondence should be short and to the point. There is no need for cordiality at this point.
The following in an example of the final notice correspondence:
Your payment, in the amount of £ 5,000.00, is due at once. Your account is now over 90 days delinquent, and we must demand your immediate payment.
If this payment is not received within ten days from the date of this letter, legal action will be taken.
I urge you to resolve this matter at once. This is the last request for payment you will receive from our office.
Do not delay. Make your payment today.
This correspondence should be sent out certified mail with a request for a signature upon delivery. Once the debtor receives the letter, they will be required to sign off that it was received. Then when you receive your copy, place it in the customer's file. Other items that should be in your customer's file should include:
- Notes taken during collection calls
- Copies of all correspondence sent to the debtor.
- A copy of the customer's credit application (with signature)
- Copies of invoices, quotes, delivery confirmations, etc.
- Copies of monthly statements
- Copies of any payments made to the account
All of this information will be needed if you decide to take legal action against the debtor. The final collection options you have are:
Small Claims Court
The process of collections can become tedious after time, however it is an integral part of any successful business. Remember that consistency is an important part of debt collection. You don't want your company to be seen as an "easy mark", or known for it's harsh collection methods. Finding a balance between the two, while maintaining good customer relations, will help keep the good customers with you and weed out the bad ones in the process.