[Editor's Note:] Today's guest post is by business development and marketing consultant Katie Mauro, whose astute comment about last week's ResultsMailVT post caused me to ask her to share her insights here this week.
While it's true that many collection problems are caused by a flawed or poorly-executed sales process, even the most disciplined and artful sales people will end up with collection problems, particularly if the business relationship lasts more than a few months.
When, despite your best efforts to avoid having slow-pay or no-pay clients, you end up in that situation, here's what you'll need to do if you want to optimize your chances of collecting as much of the amount at risk as possible.
It benefits a business in more ways than one to have two different people interacting with a customer: Sales, and Accounts Receivable.
Two different roles
Sellers are responsible for facilitating clear, eyes-open buying decisions that should include your new client having an understanding of the billing process. The seller has the challenging task of creating trust and strong relationships necessary for customer loyalty.
However, you can have the best relationship with a client and still face unpaid fees. In this instance, your accounts receivable person can be your saving grace. Should a client fall behind on payment, the A/R person takes over responsibility.
Collections can be done in many ways. More often than not, a client has misplaced the original invoice and simply needs another copy. This can be done by email, which is easy to document and follow up on. Phone calls are a more direct approach, but can be off-putting to some clients (to say nothing of the lawyers charged with managing the relationship).
Rather than sending an email which can be ignored or also “lost”, a phone call is there and in your face, and it’s a little more difficult to brush off. However, phone calls get results.
Where the client is local, an accelerated approach would be to have the sales person hand-deliver past due invoices, particularly for larger balances.
After all attempts to get past dues to a client, your best chance to recover most of the arrears is by a workout plan. Showing a client that you’re flexible and willing to work with them is more likely to get you the entire amount owed, although it may take a lot longer.
Of course, there are clients that will not pay, who never planned to pay, or can’t pay. In this situation a workout plan, a due-date extension, or discount won’t faze the debtor or increase your chances of getting paid. You'll probably have to move to a formal collection process as a last effort. While you’ll likely lose as much as 40% of the amount due in collector’s fees, some is better than none.
What’s important is that there isn’t only one way to collect.
Your service claim will be subject to the payment/collection norms in the client's market. It’s your firm's responsibility to understand your clients' purchasing habits to apply the most efficient billing and collection efforts.
Lawyers reading this will like the idea of off-loading the collection problem to an accounts receivable person, thus avoiding the potential awkwardness of having a pointed conversation about money with a client. It's almost like the movies' good-cop/bad-cop routine. The lawyers want to remain the good cop and have almost anyone else be the bad cop.
IMO, when it comes to fees and value, prevention is far more effective than remedy. Learn how to sell in a way that results in clients acknowledging, up front, the economic value of what you're about to do, rather than you trying to justify your value after the fact, when they owe you more money than they feel they should.