9
Credit and Collection Correspondence
Credit and collection are sensitive topics—on many levels. Denying or limiting a buyer’s credit, or reminding him or her that he or she owes money, is a potential emotional powderkeg. Your goal is to remain professional and neutral and get or protect your money, while retaining customer goodwill.
For all of these reasons, credit and collection issues are the domain of snail mail, not e-mail.
Correspondence regarding credit
These letters will give you the words you need to ask for credit, check on your own credit, offer or deny credit to others, and make changes to your existing credit policy.
Request for credit
Background: Credit is part of the American way of life today. According to Studebaker Worthington, a leasing company, more than 35 percent of cars, 30 percent of computers, and 40 percent of copiers and office equipment are sold through leasing. More and more sellers these days are prepared to grant credit, making the process faster and easier.
Essential elements: Different sellers will need different information to grant credit approval, but you can expedite the process by including the basics in your initial request. Your letter should include:
1. What you want to purchase and the total price of it.
2. The terms of credit you would like.
3. Very brief background information about your company.
4. A list of two or three credit references (companies you regularly buy from on credit).
5. An offer to provide further information if needed.
6. Banking information, including your bank’s name, address, phone number, and account number.
Sample:
Dear Mr. Hale:
We are looking for a supplier of quality dyestuffs for our dye house operations. After seeing your ad in Textile World, we sent for your catalog and were impressed with the breadth of your line.
We would like to purchase an initial inventory of one unit each of #1055, 1058, and 1070. At $800 each, this would be an initial order of $2,400. We would like to purchase these materials on net 90-day terms.
XYA was established seven years ago and since that time we have grown very rapidly. Our practice is to favor a limited number of suppliers with the majority of our orders. In turn, we look for volume discounts, favorable terms, and the kind of first-rate service others have told me you supply.
Other vendors and credit references include:
VelTech, 8496 Stave Avenue, El Paso, TX 56049, ATTN: Jim Pascal
FabelCorp, 584 Fourth Street, Middletown, NJ 07410, ATTN: Nancy
Watson Chemical Supply, 670 Bergen Avenue, Vernon, NH, ATTN: Dave George
If you need additional financial information, I will be glad to supply it. Or you can contact our bank directly: First Local Bank, Washington Avenue, Anytown, USA, phone 123-456-7890, account #15886798. You can talk to the branch manager, John Sullivan.
Sincerely,
Request for a credit report
Background: One of the most basic credit communications is a request for your own credit report. The following sample shows a form letter you can send to credit agencies to get that information. To get a copy of your credit report, write to the credit agencies listed below:
EquiFax Information Service
Customer Correspondence
PO Box 105873
Atlanta, GA 30348
800-685-1111
Experian
PO Box 2106
Allen, TX 75013
800-392-1122
TransUnion
PO Box 390
Springfield, PA 19064
800-916-8800
Sample:
To Customer Service:
I would like a copy of my credit report. Please send my report to the following address:
[Your full name (include middle initial and any Jr. or Sr.)]
[Your address]
[Your Social Security number]
[Your year of birth]
You will also find enclosed documentation verifying my identity. Thank you for your cooperation.
Sincerely,
Dispute of a credit report
Background: If your credit report contains errors, you must notify the credit-reporting agency in writing. But don’t rant and rave and spend ink explaining how their error has cost you time and money.
Essential elements: Be sure to provide all the information the credit bureau will need to make the change quickly. Include:
1. A statement that there has been an error that needs to be corrected.
2. What that error is.
3. What the correct information is.
4. How this information can be verified.
5. A request for the correction to be made within 10 days.
6. A request for a copy of the corrected version.
7. Include your phone number and Social Security number at the end of the letter.
Sample:
Dear Customer Service:
Please correct the following error in my credit report:
The loan account number listed for Citizens Bank on the report reads: “137547899.” This is incorrect. The correct account number is 137557899.
To verify this information call my branch manager, Len Dane, at 123- 456-7890.
This correction should change the report by deleting the erroneous statement that says I have twice been 60 days late in making payments.
Please update my credit report and send me the corrected, clean copy within the next 10 days.
Yours truly,
Request for credit information from a potential customer
Background: Another routine credit correspondence is requesting information from a potential credit account so you can perform a credit check.
Essential elements: You want to keep the order, but you also want to protect yourself. Be sure your letter includes:
1. An opening “thank you” for the customer’s interest in your company or product.
2. A request for the information you need to process the credit application. This may include credit references, bank account numbers, bank statements, statements of ownership, and so forth.
3. A promise to expedite the order as soon as the requested information is received and the credit application is processed.
Sample:
Dear Ms. Porter:
Thank you very much for your interest in our SP-500 digital writer. This instrument was designed with the needs of the small to midsize photofinisher in mind, and your choice of this model makes good sense.
I also appreciate your request to lease. The credit references you supplied to our sales rep on your order form will be very helpful. Thank you.
Would you please send me a copy of your most recent statements of ownership and results of operations? We also need a copy of your latest business bank statement. As soon as we have the information we need, we’ll process your request for financing. We’re eager to help increase your profitability with the SP-500 digital writer. We’ll do our best to expedite credit approval, shipment, and installation.
Sincerely,
Credit referral check on a potential customer
Background: Credit and collections take less time and are more efficient when you develop a library of routine correspondence for handling the most frequent communications. The following letter can be sent to any credit references given to you by a potential customer on whom you are running a credit check.
Sample:
Dear Ms. Macadam:
We have received a request for credit from Greta Freytag at XYA Company in Anytown, USA. Your company was listed as a credit reference. I would be grateful if you would supply the following information about this customer:
1. Credit terms extended to the customer, including limits.
2. A brief statement about the customer’s promptness in meeting obligations.
3. Your reservations, if any, about the customer’s financial condition and general reliability.
A reply envelope is enclosed for your convenience. I assure you that the information supplied will be treated as confidential.
Cordially yours,
Credit approval
Background: When you accept or reject a request for credit, do it in writing. The following is an example of a letter granting it. To customize this letter, put this letter on file in your computer and use it exactly as is, changing only the addressee each time you need it.
Essential elements: This letter has four simple parts:
1. State that the customer’s application for financing has been approved.
2. State the product or service you are now happy to provide.
3. Briefly review the terms of the credit agreement.
4. Close by stating that you are looking forward to a continued business relationship in the future.
Sample:
Dear Ms. Porter:
Your application for financing on the acquisition of your new SP-500 digital writer has been approved. Your order for one SP-500 with continuous sheet feeder will be shipped within five days by truck.
As the enclosed lease documents indicate, your monthly lease payment is $1,870. Since your lease covers the entire purchase, including “soft” costs, installation and training are completely covered, with no additional fee or payment required.
We look forward to serving you and hope you will call upon us for service, support, and supplies. Please keep in touch and let us know how the SP-500 is working to improve sales and customer service in your shop.
Sincerely,
Credit denial
Background: On occasion you will have the unpleasant task of denying credit to a potential buyer. This refusal should be handled with tact and diplomacy.
Essential elements: This letter should include:
1. A thank-you for wanting to do business.
2. A positive word about the company and their products or services.
3. A regretful denial of credit and the reason.
4. An open invitation to talk further to create a gradually increasing credit line (if this is reasonable).
5. A reminder that cash purchases are always welcome.
6. A positive ending wishing the customer well.
Sample:
Dear Mr. Colson:
Thank you for your application for credit at Barrow’s. We appreciate your interest.
Your personal references are exceptionally good, and your record of hard work indicates that your business prospects are good for the near future.
Unfortunately, at the present, your financial condition only partially meets Barrow’s requirements. We cannot extend the $5,000 open credit you requested.
Please call me at your convenience. I am sure we can set up a program of gradually increasing credit that will benefit both of us. Meanwhile, remember that deliveries on cash purchases are made within two days.
Let me hear from you soon. We are interested in your business venture.
Sincerely,
Limited credit approval
Background: Another situation that must be handled sensitively is granting credit, but not in the amount the customer wants.
Essential elements: Make this letter short and to the point. Include:
1. A thank-you for the order.
2. A statement of the line of credit you are able to offer.
3. An explanation of the balance required to deliver the entire order.
4. An invitation to further discuss extending the credit limit (if appropriate).
5. An ending that assures the customer you value your business relationship and are appreciative of the opportunity to work together.
Sample:
Dear Mr. Smith,
We appreciate receiving your order for 1,000 XTM-500 linear circuit amplifiers.
Our credit department has approved your firm for a credit line of $10,000. Because the total on your current order exceeds this limit, we need at least partial payment (half up front) to ship the goods to your factory.
If you anticipate more purchases of this size, call me and we’ll see what we can do about extending your limit. We value your business, hope this is a satisfactory solution, and thank you for the opportunity serve you.
Sincerely,
Credit suspension
Background: One of the toughest business decisions is whether to put an account on hold, especially a large volume customer. The best course is to establish a firm credit policy, stick with it, and suspend credit for buyers who fail to meet criteria for receiving credit. Do not criticize, insult, or blame the customer in anyway. Do not request payments due; this should be done in a separate collection letter as outlined later in this chapter.
Essential elements: The letter should explain why the decision to put credit on hold was made and what the customer can do to restore credit status. Include:
1. An opening that says you value this customer.
2. An explanation how late payments affect your company.
3. An assurance that you want to continue doing business.
4. An explanation that you require payment with future orders until past debts are paid.
5. An invitation to open a credit card account (if appropriate).
6. An assurance that the customer will return to the original credit status when the account becomes current.
7. An invitation to talk further about this problem.
Sample:
Re: Your account #58589922
Dear Ms. Jones:
We value you as a customer. But for us to offer you quality goods at competitive prices, we depend on on-time payments from our accounts. And lately your payments have been late and your account seriously past due.
We still want to provide you with the connectors and fasteners your business needs. And we won’t cut off shipments. But until your account is made current, we require payment with future orders.
A review of your account shows frequent purchases with an average order of $250. For your convenience, you may pay by credit card. Just call our Credit Department at 123-456-7890. Ask for Sheila or Sam and give us your credit card number and expiration date. We’ll immediately set you up as a credit card account.
You may go off credit card status and return to a billing arrangement as soon as your account is current. If you prefer another arrangement, please call us and we will work with you to find an alternative payment method that works for you.
Sincerely,
Credit restoration
Background: This letter not only notifies the customer that credit has been restored but offers thanks and praise to the customer for improving the payment record. If there is a perk you can tie to the restored credit status, such as an extended credit line, do it in this letter.
Essential elements: Don’t assume your customers know that credit terms are restored after a required payment. Notify them in writing (they may need this for their records). Include:
1. A thank-you for payment.
2. The announcement that the credit line is now restored.
3. A positive change in the terms of credit (if appropriate and desired).
4. A final closing mentioning your appreciation.
Sample:
Re: Your account #58589922
Dear Ms. Jones:
Thanks for your recent prompt payments. Our records reflect your account is now current.
Given these circumstances, I am happy to restore your full credit line. In fact, your recent payment record enables me to extend your credit line from the previous $5,000 to $8,000. This will enable you to stock the added inventory you need to accommodate the growing demands of your customers.
On a personal note, I admire your cooperation and appreciate your sincere efforts. You have made my job easier, and I appreciate it.
Sincerely,
Collection notices
It’s one thing to give your customers credit—they like “free money.” However, it’s another to actually collect the money due. These collection letters need to be firm, yet understanding (to a point), to convince your credit customers to write out the check today.
Model invoice
Background: Firms that extend credit must bill customers. You should have a standard form invoice you use to bill credit customers. But if not, here’s a format you can use:
Sample:
Invoice #
Reference: Purchase order #
From: [name, address, phone]
To: [person’s name, company name, address, phone]
For: [product or service you are billing for]
Amount: $___________
Terms: [for example: net 30 days]
Notification of credit terms and conditions
Background: A bill should never be a surprise to a customer. If you attach financial penalties to your business terms, such as a doctor’s office charging patients for missed appointments, these conditions must be communicated to the client in advance. Written communication is the best way to do this.
Essential elements: This letter should state the changes you are implementing and reasons for the change. It should include:
1. A positive statement about appreciating the customer’s business.
2. An explanation of why you find it necessary to change the terms of your credit policy.
3. A direct statement of the change.
4. The benefit to the customer of this change.
5. An invitation to discuss the change further.
Sample:
To all clients:
Each account is of utmost importance to me. I strive to fill all orders quickly and efficiently and to extend to qualified customers satisfactory terms of credit.
However, because of an excessive backlog of overdue accounts, I find it necessary to make the following change in the terms of my credit policy effective May 1:
1. All accounts 30 days overdue will be assessed a 2 percent late fee.
2. All accounts 60 days overdue will be assessed a 3 percent late fee.
3. All accounts 90 days overdue will be referred to a collection agency.
The only way I can continue to offer reasonable rates to each of you is if I am assured payment for the products I supply. I’m sure you can understand the necessity for these changes in credit terms. If you would like to discuss these terms, please feel free to contact me.
Thank you,
Refusal of a partial payment plan
Background: When a customer offers a partial or monthly payment plan, it’s generally a good idea to accept. Not doing so causes ill feelings and often results in no payment at all. However, there are cases where the customer’s proposition is simply not acceptable. Your job is to say no politely but firmly.
Essential elements: This is a letter of compromise. It should include:
1. An acknowledgment of the customer’s interest in making payment.
2. A review of the customer’s account.
3. An explanation of why you must refuse the suggested payment plan.
4. An offer of an alternative compromise plan.
5. An invitation to discuss the terms further.
Sample:
Dear Mr. West:
Thanks for your letter. We appreciate your sincere attention to your account balance.
Given your balance of $1,600, we feel that a $50-a-month payment would take too long to bring this account current. Let me suggest an alternative: $100 a month, with the option to skip one month per year without penalty if you need to.
To discuss this further, you can reach me at 123-456-7890.
Sincerely,
Collection letter series
Background: It’s a sad fact of business life: Many customers won’t pay their bills on time. Some won’t pay them at all.
Milt Pierce, author of How to Collect Overdue Bills, says that for the typical small business, 10 to 70 percent of assets are usually tied up in accounts receivables at any given time.
Here is a collection series that you can use to collect past-due bills. All of these letters can be stored on your computer as is and used as form letters when you need them. Just fill in the blanks. After the fifth letter, consider using a collection agency to shake the payment loose. See “Collection Tips” on pages 218-222 for the details.
Samples:
Collection letter #1
The first collection letter is the softest in tone.
It is a reminder and nothing more:
Dear
Just a reminder that payment of Invoice #________ for [insert name of product or service] is now past [number of days/weeks] due. (See copy of invoice attached.)
Would you please send me a check today? A self-addressed, stamped reply envelope is enclosed for your convenience.
Regards,
Collection letter #2
The second collection letter is just as polite as the first, but it is a little firmer in requesting payment. It also sets a time frame for responding.
Dear
I haven’t received payment for Invoice # ______ yet. Did you receive my original bill and follow-up letter?
Is something the matter? Is there some special reason why you have not paid? Did you receive our earlier invoice? If you need more time, don’t hesitate to ask. Otherwise, please send me a check for $______ within five business days.
Thanks,
Collection letter #3
The third letter is more insistent in tone. It says you either need payment or a good reason why payment hasn’t been sent.
Dear
This is the third notice I’ve sent about Invoice # (attached), which is now [number] weeks past due. Let me assure you that this bill will not be forgotten. Please, for the sake of your good credit rating, make every effort to clear up this problem right now. If payment cannot be delivered within five business days, call to discuss extending the terms.
Sincerely,
Collection letter #4
From this point on, the letters you send should become increasingly more insistent and urgent. Be firm. Do not make payment seem optional; make clear it is mandatory. This letter should be sent by certified mail.
Dear
Despite three previous notices about Invoice # (attached), it remains unpaid. I haven’t heard from you, and you haven’t responded to my letters.
Unless you act within the next five days, your invoice will be referred to an outside collection agency. I have made every effort to collect payment, and still you have ignored every opportunity to pay this bill. You now have only five days to clear up this matter before more drastic action is taken.
I do not like turning accounts over to a collection agency, but you are leaving me little choice.
Sincerely,
Collection letter #5
The final letter makes clear that the grace period is over and you expect to be paid. You have to strike a balance between sounding serious and not being overly threatening. After five days, it’s time to give this final notice.
You have left us no choice. We must now proceed with every legal means of collection. There is only one way that you can put a halt to our next legal action.
Dear [Name]:
If there is some good reason that you would like to discuss regarding your unpaid bill, you have only one final opportunity to put a halt to the legal action that we plan to take in your area. Please call me right now at this number: 123-456-7890.
Unless I hear from you within the next 48 hours, I shall institute every legal means for the collection of the amount of money that you owe.
You must act immediately. This is a serious problem.
Very truly yours,
Collection courtesy
When a customer responds to your request for payment for an overdue bill, it’s a good idea to send a follow-up thank-you note. You should also respond in writing if you have made an accounting error and wrongly sought to collect money not owed.
Thanks for payment
Background: When a customer makes a payment in response to your requests for payment, thank him or her. In your letter, stress the thank-you, not the fact that the payment was late. Compliment and praise, rather than criticize or condemn.
Essential elements: Although it’s about time your customer paid, be gracious with your thanks. Write a letter that includes:
1. A thank-you for the payment.
2. An acknowledgment that the customer’s business is important to you.
3. A reminder of the present credit status.
4. A gentle reminder of the next payment due to motivate the customer to keep up with the payments and not be delinquent again.
Sample:
Dear Mr. Jordan,
Thank you for your payment of $1,500. We appreciate your attention to your account status with us. Your patronage is important to us, and we thank you for responding to our payment queries.
Just to bring you up to date: Your current balance is $5,000, your credit limit. A payment of $750 is due May 1. If there’s any problem or question, call me at 123-456-7890. Thanks.
Sincerely,
Apology for an accounting error
Background: The danger of being too tough when chasing late payments is the possibility that the payment may not really be late. Your letter and the customer’s check may have crossed in the mail. Or your accounting department may have misplaced or not credited a recent payment. Clear up these mistakes at once in writing. Apologize sincerely to defuse customer annoyance and anger.
Keep in mind that if you made the error, the customer suffers the additional damage of having his or her time wasted trying to resolve a problem that was your fault. Consider compensating the customer for it. A discount on a future order is the best compensation, because it not only gives the customer real value but also encourages more purchase of your product or service.
Essential elements: This letter will reflect the particular error you have made. But the basics should include:
1. Thanks for your customer’s patience, and an apology for the mistake.
2. An assurance that the problem has been corrected in the customer’s records.
3. Any adjustments to or the elimination of any penalties that were implemented.
4. Compensation you will give the client to rectify the inconvenience caused (optional).
5. To close, another thank-you for patience, and another apology.
Sample:
Dear Mr. Bindleglass:
Thank you for your patience and understanding. Let me apologize for the error we made in your account statement.
When you called last Friday, I said we had not yet received your last payment. It turns out we had your check, but it had not yet been posted to our system. I have credited your account $850.
Our policy states that 2.5 percent interest is accrued on the last business day of the month for all credit accounts. However, we are waiving this policy from January 1 through today. This will remove late-payment interest charges of $65.78 from your balance.
To offset any inconvenience you have had in reconciling your account, we will give you a 20 percent discount on your next order. This should be automatically reflected in the invoice for that order. If not, let me know and I will personally handle it.
Thank you again for your patience. We value your business. Please accept my apology.
Sincerely,
Collection tips
The following collection tips will help you use your collection letters (also called dunning letters) to gain the most positive response. The goal is to get the money owed to you and at the same time keep the customer—not an easy task.
A change in letterhead lifts response
Experience proves that a change in letterhead in a dunning letter series will lift responses virtually every time. One situation where such a letter works well is as a replacement for the third or fourth effort in your internal cycle-typically after you have sent a bill and two notices and have suspended shipment of further orders.
Response-boosting tips
Here are some techniques that can successfully boost response:
0 Vary the dunning cycle. To extend the billing series and increase net recovery rates, progressive agencies vary the timing between efforts, typically from 14 to 28 days. This is a proven response-booster.
0 Vary the text of each letter in the series. Tone should increase from soft or mild to more severe and insistent.
0 Change the color of the paper the letter is printed on as well as the outer envelope. Switching from white to red or blue changes the entire tone of the effort—and can significantly increase recoveries.
0 Vary the size, shape, and appearance of the outer envelope.
The key is to keep each mailing fresh so that the subscriber does not think it’s the same notice he or she received before. Remember, even the most powerfully written collection effort will get no response if the envelope is not opened.
Bring the collection agency in early
How long should you try to collect the money yourself? For merchandise, the internal dunning cycle (collection letters sent directly from the company) should consist of at least four efforts sent at 30-day intervals. (See sample collection series earlier in this chapter.)
At that point, it’s time to refer the account to an outside agency. As you know, the older a bill gets, the more difficult it is to collect. Getting a third party involved creates a greater sense of obligation and urgency. When the collection letters suddenly start appearing on the official-looking letterhead of a third party, instead of your organization’s letterhead, the bill suddenly becomes a “real” debt to the customer—one he perceives he is obligated to pay.
Choose the right agency for the job
Finally, here are some things you need to look into when evaluating outside collection agencies:
How many years has the agency has been in business?
H Check references. Find out what clients say about the agency. Is the agency successful? Are the agents easy to work with?
Look at sample credit reports; are they clear and easy to read? Do they provide the information you need?H Is the agency bonded? Is it a member of the American Collectors Association, or the American Commercial Collectors?
0 Are the agency’s IT systems compatible with yours?
0 Fees are important, but beware: The lowest-priced agency may actually cost you more if it doesn’t perform. By the same token, the agency generating the highest gross recovery rates may not make you the most money if its fee is too high. You want the agency that can generate the highest net recovery rates.
Third-party or contingency arrangement?
Collection agencies typically work on two different fee arrangements: third-party letters and contingency.
In a third-party arrangement, you pay a fixed fee per collection letter mailed. This is typically $400 to $600 per each thousand collected, but can be more or less depending on volume. Keep in mind that there may be minimum volume requirements for the agency to work on such a fixed-fee basis. The third-party arrangement offers you a low, fixed cost per letter, enabling you to budget accurately and to predict returns based on projected response rates.
In a contingency arrangement, the agency’s compensation is a percentage of the money recovered. This is typically 40 to 50 percent. You pay only for results, not for pieces mailed. With the contingency method, there is no initial investment, no risk, and no out-of-pocket cost. You can initiate this type of program at any time because it does not require you to have a budget for back-end collections. The agency assumes all cost risks, and the program generates the agency’s fee.
Whether it is better for you to use third-party or contingency collections on your first effort depends on your situation. The contingency arrangement reduces risk, because there’s no out-of-pocket exposure. It also allows you to test a new collection agency for free.
On the other hand, if you have reason to think that response to the first external effort will be high, the third-party arrangement can net you more cash. You can determine the return on investment at different response rates through a simple break-even analysis based on the agency’s fee and the average dollar balance of the accounts. Traditionally, the first external effort generates the highest recovery rate in the series, so it’s where you are most likely to recoup your investment in a third-party mailing.
Approve collection letter copy
Review all agency letters before they are mailed. Question any language you find inappropriate for any reason.
The tone of your collection letters should be consistent with the philosophical or customer service approach of your company. Because most businesses are concerned with image, your collection letters shape your customers’ perception of your organization as much as your service or product does. What works for the phone company in a billing series may not necessarily work for a landscaper.
At the same time, don’t err on the side of being too soft or conservative in tone. Remember, your customer placed an order and then did not pay for it, despite repeated requests to do so. Firmness is required. Remember that the first effort in the external dunning cycle must be at least as firm as the last effort of your internal cycle.
Many businesspeople worry that the external collection cycle will upset or “turn off unpaid accounts, alienating them from making future purchases. Experience shows this fear is largely unwarranted. Author Milt Pierce notes, ”A customer who owes you money and is not responding to dunning will not place another order with you.“ To have a good business relationship, bills must be paid.
Any level of customer sensitivity can be dealt with, and if the agency carefully tailors the collection letters to your product, offer, company, and readership in a professional manner, complaints will be few and far between. Properly written external collection letters are never offensive. And they always protect the customer’s right to dispute the invoice.
Have your agency share information with you
Make sure that information gathered by your agency’s customer service and special correspondence response departments is shared with you. This information alerts you to problems.
For example, are there shipping delays? Do your sales reps make the terms unclear or mislead prospects about their obligation? Are your collection efforts evoking any ill will? In the external dunning cycle, your agency gets this information first-hand from dealing with your no-pay subscribers. Make sure they share it with you.
Find out the reason why buyers are not paying. Some will tell your agency they never received your product or received it but wrote “cancel” on the bill and returned the goods. Other excuses range from “I paid already” to “I don’t like your product.” Be sure to discuss with your agency how you want it to react to these kinds of responses.
Keep on top of collection results
An external collection cycle proceeds quickly, with only two to four weeks between efforts. So it’s important to keep on top of results on a timely basis. Your agency should provide statistical reports on external collection recoveries in an easy-to-read format. The agency should also have the ability to check the status of any account on an online basis. The purpose of the report is to track external collection results and monitor agency performance. A collection agency report should show, for each month’s referrals, the following information:
Beginning total amount to be collected for these accounts.
Average dollar balance.
Payments made both directly to you and to the collection agency, both full and partial.
Number and percentage of bad addresses (nixes) and “skips” (customers who have moved without leaving a forwarding address).
Credits and adjustments.
Remaining number of accounts to be collected and total dollars owed.
0 Number of accounts referred to the agency.
Beginning total amount to be collected for these accounts.Average dollar balance.Payments made both directly to you and to the collection agency, both full and partial.Number and percentage of bad addresses (nixes) and “skips” (customers who have moved without leaving a forwarding address).Credits and adjustments.Remaining number of accounts to be collected and total dollars owed.Ideally, your agency should also be able to provide not only a summary of the above information for each month, but also a detailed report showing the activity for each account, sorted by ZIP code, source, or any other variable you desire.
Don’t give up too early
Many outside collection agencies use only one or two letters to collect past-due accounts. But they may be giving up too early.
You want an agency that isn’t just content to collect the “easy” receivables but that also goes after those hard-to-collect delinquent accounts. Testing by the agency may suggest that additional efforts are beneficial. For instance, although a one- or two-letter external series is common, some progressive agencies are achieving profitable recoveries with an extended letter series. Ask for these details before you hire a collection agency.
Practice customer retention, not just collection
The goal of your dunning cycle is not just to collect the money owed you but also to retain the customer—and her goodwill. You are not just a collector but a customer service representative as well. The by-product of good service is payment.
Here are some ideas on how your collection agency can help you improve customer service:
1. The external letter copy must acknowledge that not every customer the agency duns actually owes you money (for instance, it’s possible a customer is being billed in error). Letters should not only seek payment but also encourage customers to call or write and explain why they have not paid or feel they do not owe the money.
2. Once the customer pays, it’s your responsibility to start shipping his orders to him again promptly. Make sure your agency or accounting department can transfer payment information to your shipping department on a timely basis and in a convenient format so pay-ups can be quickly fulfilled.
3. Promptly acknowledge and resolve every nonpayment and partial payment response. Your collection agency should have a special correspondence response department whose job it is to communicate with customers who dispute invoices, make partial payments, or have other out-of the-ordinary responses.
4. Be sure your agency employs a courteous and professional staff that treats your customers with dignity and respect at all times.
Legal action?
What about legal action? Small dollar balances make going to court impractical in most cases. However, an attorney demand letter (collection letter on law firm stationery) may prove profitable in many cases.
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.