Supposedly first quoted by Benjamin Franklin, the phrase, ‘Time is money’, holds exceptionally true in the case of debt recovery. For, time management is often considered a crucial part of collecting overdue payments.
Considering how the collectability of a debtor keeps decreasing the longer the account is left as outstanding, the process of debt recovery becomes a time-sensitive task. From initial reminders to collection calls, it is essential to ensure that each action carried out follows the time frame associated with the task.
For instance, the objective of debt recovery is to obtain the outstanding payment within the due date. In order to facilitate this, the customer dunning process has to begin way before this set date. Similarly, an accurate and timely method has to be followed while sending reminders to debtors. If you specify a period of three days to receive the payment confirmation, it is imperative that you call the customer right after the three days. This also helps in communicating that you are prompt and serious about following up.
Time management is one of the key skills a debt collector or professional needs to develop before he begins with the procedure. Understanding that time is of essence should encourage you to take a proactive approach towards the process. Staying at the same stage of collection for months will only end up detrimental to your business.
Lax measures and lack of commitment will only lead to further defaulting on the debtor’s part. Being overly flexible gives customers the impression that late payment is not as serious an issue while well-timed raises and professional communication encourages them to pay bills as per the due date.
Deciding on a progression for your collection process is another major aspect involved. Gentle notices before due date to progressively stern reminders help communicate the seriousness of the situation before you move onto formal notices or legal measures.
Using time effectively to recover outstanding amounts not only highlights the business’ credibility but also helps build a healthy bond with the customers, in the long run.
As a commercial creditor, you often face challenges that require you to take productive decisions while ensuring you keep a check on your bottom line and maintain good relationships with your customers. Managing all of it to achieve a successful balance can be easier said than done. Perhaps, one of the most worrying tasks you encounter on a regular basis, as a part of your business, would be the process of debt collection. After all, overdue and delayed payments can have quite an impact on your day-to-day operations, and ultimately, on your business. Identifying some of the common challenges faced in debt collection might help you plan proactively to deal with such problems.
1) Excuses by Debtors
As part of your debt collection process, it is ideal to determine whether a debtor was unable to pay due to real financial problems or falls into the category of “regular defaulters”. This classification can be of help when it comes to handling debtors’ excuses as falling for the wrong excuses and tactics can cause further trouble for your business. While foreseeing possible excuses can ease the issue to a great extent, putting in place a clear set of guidelines and a regulated system reinforces the process of debt collection.
2) Getting Support
The longer an amount goes unpaid, the less likely it is to be collected. Taking this into consideration, businesses have the option to take help of debt collection agencies. This step can relieve you of the extensive efforts you have to take up, instead utilizing the expertise and resources of the agency for ensuring payments are collected on time. The fundamental element, in this scenario, is recognizing the need to get help and the perfect firm to approach for this task.
3) Inefficient Management of Queries & Correspondence
In most cases of debt collection, managing queries and correspondence between the customer and the business is done by manual processes. Apart from being time consuming, this can use up a considerable amount of effort and resource that could be put to better use in other tasks. A feasible solution for this would be automating these processes for smoother functioning. Whether it is query management or sending out past due reminders and emails, automation can prove to be beneficial in the long run.
4) Customer Going out of Business
Another obstacle that you often overlook or not expect as a commercial creditor is the possibility of your customer going out of business. However, it is important for you to keep track of such issues as they can affect the payments due to you. Nevertheless, this can be alleviated by following a rigorous credit application process which includes credit checks and reference verification. Apart from background checks, implementing routine re-verifications and reevaluting credit limits are proactive measures you can adopt to avoid or even foretell such a situation.
5) Failure to update collection strategies
While it can be encouraging to have in place a system that works well, it is necessary for businesses to constantly update or develop new collection strategies in order to keep up with changing circumstances. This also helps refine the process, eliminating complications with every step. The process of updating requires you to have a certain level of flexibility so as to allow the development, testing and application of new strategies that can boost collections.
While there is no foolproof method to avoid bad debts, having a proactive approach can constantly help anticipate challenges in the process of debt collection and find practical solutions for them accordingly.