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Debt Collection by Telephone
Successful telephone collection is achieved through good preparation prior to the call

Debt Collection by Telephone is good for customer relationships

Debt Collection by Telephone

Its well known that it is easier and cheaper to keep an existing customer than it is to find a new one. Therefore, in the interests of good customer relationships the most effective method of collecting overdue debt can be a combination of debt collection by telephone and a follow up letter.

One could argue that your customer knows that they have not paid you – it is very often a deliberate decision, based on their ability to pay. However a timely reminder gives them the opportunity to pay you next – sooner, rather than later – because your Collection letter will have clearly stated what happens if they don’t pay.

If and when there is no response to your collection letter, it would be wise to phone them, or visit them personally. Ask them why they haven’t paid. Either way, know what you are going to say, and how you want to resolve the debt and end the conversation.

If in doubt consult your Debt Collection Policy which should outline the process for increasing pressure to obtain payment, whilst maintaining a good business relationship. However, be sure not to back down or be bullied by ‘Important Customers’. If your customer/s can see that the over debt is important to you and that you are serious about talking it through with them, they will most certainly consider making payment – or arrangements to pay.

He who hesitates is lost

Many business owners are reluctant to develop Debt Collection Policies, with a “She’ll be right” attitude. And of those who do, many are reluctant to enforce these polices, for a multitude of reasons – most of which are invalid.

For some they are simply too embarrassed to ask for money even though it is owed to them. Others express concern that they might upset and therefore loose a “good customer”. However the opposite is true. How good is a Customer who’s account is overdue?

Therefore one could argue that you have a responsibility to ensure that your Customer/s do not accumulate a large and overdue balance – the customer owing you a large balance may be reluctant to do more business with you until the account is cleared. You have not only lost your money, you have also lost a customer.

Some companies feel that rigorous enforcement of a collection policy, something as standard as debt collection by telephone, can damage their reputation. Viewed logically, would you conclude that a person who owes you money is likely to spread this news around town?

Putting a plan in place will ultimately help your business to grow by allowing collection of funds and obtain use of those funds faster and more efficiently.

Debt Collection by Telephone Pre call check list

Debt collection by telephone is very successful when you take a few minutes to prepare yourself BEFORE you make the call, and more importantly, being in control during the call.

Before you pick up the phone do your home work, be prepared and have all the facts at hand. You should not be put in a position where you need to end the call to gather more information. And adhere to your Debt Collection Policy.

  1. Who will call from your company: your Debt Collection Policy should make this clear and will qualify how important the debt is to your company. If the owner or senior management in your company calls the owner or management in the customers company, the importance is accepted by both parties as high
  2. WHO are you going to call: as above, your Debt Collection Policy should make this clear. Whoever it is that you talk with, s/he must be able to provide all the answers and make a commitment to pay. If you find yourself in a position where s/he can not make a commitment to pay then we would urge you to arrange a meeting. A face-to-face meeting, at their premises, gives you an opportunity to assess the chances of being paid. Look for signs of decay – poor and / or no maintenance, shortage of staff, empty shelves, equipment and machinery that haven’t been used in a while etc.
  3. When do you want to be paid: within every industry there seems to be an historical / traditional and acceptable payment period, be it cash on delivery, within 7 days, 14 days, 21 days, 28 days or 20th month following invoice. Regardless of your industry norms, how important is this debt to the survival of your company? What impact will the delay or nonpayment of a debt have on your ability to pay your creditors, PAYE and / or GST etc
    These factors will have an enormous influence on your efforts to collect any outstanding debt. Additionally you will need to consider the importance of continued trade with this customer. So rather than close the account you may consider cash on delivery while they catch up through installments
  4. Respond, try not to ‘React’ be prepared for a customer who says “we have no money, and have no idea IF or WHEN we will ever be able to pay you”. Or “we can’t (or won’t) pay, sue me if you want.”
    It would be a natural reaction to “lose it” and say all sorts of negative comments to your customer, however if you remain calm and respond by asking more questions you may be able to help in some way. For example; a quiet response may allow you to negotiate a visit to collect any unused goods. The customer maybe very grateful for a credit or even a refund. It may not get all of your money back (and you need to be mindful of Section 292 of the Companies Act that allows liquidators to claw back payments made up to two years before a company fails)
  5. Take Note If your accounting software does not have a facility to record communications with your customers then you may want to consider changing software, or using some form of Customer Relationship software to record your communications – email, letter, phone and personal visits. This will allow you and all, authorised, staff to view the history (trail of deceit, in some cases). This is of particular benefit if there has been a change of staff, OR you need to take legal action!

Debt Collection by Telephone Objectives

First Objective: Obviously the first objective of a debt collection by telephone strategy is to get paid, whether it be immediately, within 3 – 10 days: if the customer wants closer to 10, than 3 days, we suggest you insist on a post dated cheque, or state that you want cash in 10 days.

Second Objective: You may have to settle on a compromise, something like a split payment of 50% now, and the balance in 7, 14, 21, or 30 days.

Third Objective: Crunch time, your customer can’t commit to any payment within 30 days, or is looking at settlement beyond 30 days. This indicates that your customer could be insolvent (the company is able to pay its debts as they become due in the normal course of business – Companies Act 1993, Meaning of solvency test).

Gather as much information as you can, because now is the time to decide what is this customer worth to you? The thirty-day period is a significant period in the collection industry. If your debtor is looking at a longer period than thirty days, the prospect of insolvency is great.

In summary: use the debt collection by telephone strategy to strengthen the business relationship, while collecting an overdue debt and gather additional information in order to make an informed decision on future trading with this customer.

A letter or email might be the easy option, but neither can not tell you if the “Cheque is in the post”, or if the customer intends to pay and when they intend pay. A phone call can establish why the customer has not paid.

If you have any doubt about the customers intention to pay, then send an immediate letter (or email with copy to relevant stakeholders) to the customer summarizing your telephone agreement.

Protection against persistent problem payers

One very important debt collection tip is to make sure all your customer agreements and contracts clearly state that you intend to include and pass on the costs for any collections onto the customer. Your customer needs to know that if their fail to pay their bill and it becomes seriously delinquent such that you end up hiring an outside debt collection agency, your customer will be responsible for any such collections costs, including interest.

However, it must be included and written in the contract up front, so that there’s no confusion later. Not only can your business recover its bad debts, you can effectively hire a debt collection agency for free!

The point is it has to be stated so in the beginning.

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