Collecting a late payment from a customer can be awkward and tricky. Discover how some companies are approaching this problem:

Sooner or later, you’re bound to encounter it—the past-due account. It’s been over 60 days since you’ve closed the deal and sent the bill. You’ve already mailed out two reminders. What do you do now? Unfortunately, there is no single correct answer to this question, but some companies are favoring certain strategies.

For several respondents to Industrial Distribution’s 57th Annual Survey of Distributor Operations, the trick is to get salespeople involved in the collections process. Abe Walking Bear Sanchez, an accounts receivable speaker and a consultant to the Specialty Tools & Fasteners Distributors Association, agrees with this strategy, pointing out that the “whole thing is a sales function.” Therefore, it makes sense to get salespeople to follow up on what they started. After all, they’ve already established a relationship with the customer.

Others, however, advise against this approach. For example, Eric Seiden, vice president of Interstate Screw Company in Florida, says that salespeople and credit managers are like oil and water—two separate entities that do not mix. And getting a salesperson to do a credit manager’s job could damage the salesperson’s relationship with the customer. “If I’m selling you something—and even though it’s not my fault your company is not paying—but I come in and nag you for money, the next time you see me you’re going to be thinking, ‘This is the guy that’s been bugging me,’” Seiden tells Industrial Distribution. “Unless we plan on never selling to that account anymore, we don’t send the salesman to ask for money.”

But there are times when involving a salesperson in bill collecting could be effective, he admits. For example, salespeople could be helpful when customers have questions about an invoice. In such cases, the fact that the salesperson has already formed a relationship with the customer will help him or her ease any concerns. Seiden also points out that salespeople could be of assistance to credit managers when an approach that’s akin to the “good cop-bad cop” strategy is used. “A salesman might say something like, ‘You get me half the money and I can get the credit manager to release your order,’” he tells Industrial Distribution. “Of course, all along it was actually the credit manager who made the decision to let him do that!”

According to Seiden, his company doesn’t contact slow payers until almost 60 days have passed. “Nobody’s paying in 30 days,” he tells Industrial Distribution. “I have huge multinational companies who don’t pay in 30. And it trickles down because everybody has cash flow issues.” The results of the 57th Annual Survey of Distributor Operations certainly support this contention. While 46% of the distributors who responded report that their customers pay in 45 to 50 days, 17% say that the wait for payment can stretch up to 60 days.

So you’ve waited for a while and now it’s time for the credit department to initiate contact. Seiden recommends adjusting your approach depending on the person you’re dealing with. If you’re speaking to the owner, he says, show a lot of diplomacy so he or she doesn’t get annoyed and decide to stop doing business with your company. In contrast, if you talk to the accounts payable department, you can be more direct since there’s no question about the purpose of your call. “We’d say ‘Listen, you’re not on credit hold yet but we notice there might be some money due soon,’” Seiden tells Industrial Distribution. “And half of them will respond by saying ´Yeah, we’re going to process your check next week.’”

Technology could also help companies deal with slow payers. For example, White Cap Construction Supply revamped its invoice statements last year, using feedback from customers, credit people and sales personnel. The company’s statements now have a different format with a new “sort and subtotal” option that organizes the statements by specific job and job number. “We have customers who work on dozens, if not hundreds, of different jobs,” Bob Mealey, director of credit at White Cap, tells Industrial Distribution. “[The new format] gives them the option of getting their statements sub-totaled by the job, for purposes of billing their customers.”

Indeed, there are several different approaches to the tricky art of collecting from slow-payers. From deploying your sales staff to modifying your approach based on the contact person to using technology, solving the issue of the past-due account takes some creativity as well as a sense of humor.

Source:

The Check is in the Mail (maybe)
Joe Nowlan
Industrial Distribution, March 1, 2004
www.manufacturing.net/ind