B2B DEBT COLLECTION BEST PRACTICES INTRODUCTION COLLECTION BEST PRACTICES. Presented by Michael C. Dennis, MBA, CBF, CCP, CPC

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1 B2B DEBT COLLECTION BEST PRACTICES Presented by Michael C. Dennis, MBA, CBF, CCP, CPC Michael C. Dennis. All Rights Reserved 1 INTRODUCTION About 80% of people learn about B2B collection on the job meaning by trial and error The goal today is to shorten the learning curve Another goal is to provide tools that you can use today 2 COLLECTION BEST PRACTICES Become more assertive the further past due an account has become Call delinquent debtors early and often Don t start your call with an apology Keep your salespeople informed about collection problems Consider a team-based collection approach Don t ask if the debtor has necessary documents 3 1

2 BEST PRACTICES, CONTINUED Try not to let credit holds come as a surprise Request immediate full payment when you call Call, don t write Be assertive but not aggressive Stay professional Shorten or eliminate grace periods 4 BEST PRACTICES, CONTINUED A threat of a credit hold will often result in payment Follow up on the payment commitments you get Assign your best collectors to your worst customers When calling, don t multitask Don t ignore smaller, older past due balances 5 BEST PRACTICES, CONTINUED If a customer says they need a copy of an invoice, be sure they have copies of the rest of your invoices If a customer says that an invoice is in dispute, expect them to pay the undisputed balance immediately Never say anything you ll regret later Don t mislead the debtor Negotiate with decision-makers, not blockers 6 2

3 BEST PRACTICES, CONTINUED Be the squeaky-wheel creditor Don t re-establish open account terms just because a customer finally pays the past due balance If a customer ever gives you an ultimatum, don t make a quick decision Limit authority to accept extended payment proposals 7 BEST PRACTICES, CONTINUED Make sure customers know who to contact about disputes Be sure the workload for collectors are reasonable Don t be intimidated by confrontational customers Send a final demand before placing an account for collection If you don t know the answer to a question, don t guess Don t lose your temper 8 BEST PRACTICES, CONTINUED Use credit enhancements to accelerate collections Send written reminders to delinquent debtors Make sure that you re rejecting POs with incorrect price, or incorrect payment terms Don t call debtors liars even when the lie to you 9 3

4 BEST PRACTICES, CONTINUED Charge back unearned cash discounts Develop responses for dealing with common customer excuses Flag customers that have a history of breaking commitments Recognize that customers A/P usually don t have the authority to repay deductions Remember that you cannot avoid confrontations 10 BEST PRACTICES, CONTINUED Consider giving your collectors cell phones Consider hiring multi-lingual collectors Find out what language your employees speak Use credit holds to encourage faster payment Require seriously delinquent customers to sent payment by overnight delivery 11 COLLECTION TIPS AND TRICKS Make sure your company is issuing credits promptly Call early in the customer s work day Be persistent and firm in discussions with debtors Maintain accurate customer contact information Make sure debt collection is a top priority for people with multiple jobs 12 4

5 COLLECTION TIPS Be sure that payments are applied as directed by the debtor Don t accept a payment commitment without making certain that it is the debtor s best offer Avoid intermediaries; deal directly with decision makers Make sure collectors understand their role as a negotiator, not a note-taker Prioritize outbound collection calls in descending dollar value 13 COLLECTION TIPS Use the phone as your primary collection tool Don t leave multiple voic messages Always confirm customer commitment in writing Challenge debtors that try to use weasel words Don t simply focus on the number of calls made If you re going to leave a voice mail message, make it a good one 14 I am only doing my job This wasn t my decision WHAT NOT TO SAY I am under a lot of pressure to collect the past due balance That s not my problem I don t have time to provide you that information I can no longer work with NAME in your A/P department 15 5

6 USE THE LEVERAGE YOU HAVE The salesperson may be able to leverage their contacts You can ask to speak to a manager if your usual contract cannot help Pending orders can be used as leverage If you are a manufacturer, a production hold can be used as leverage If demand for your product exceeds your ability to supply it, that is leverage 16 OTHER FORMS OF LEVERAGE Your willingness to continue to offer open account terms The size of your credit limit Your willingness to contact guarantors Your willingness to place an account for collection Your ability to force a customer into bankruptcy Your willingness to demand collateral pledged to you 17 HOW TO AVOID BAD DEALS Think long and hard about any extended payment proposal Never agree to a payment plan without confirming that other creditors are being offered the same deal Insist the debtor put their proposal in writing Recognize that walking away might be your best option 18 6

7 HOW TO AVOID BAD DEALS, CONTINUED Don t feel pressured into making a bad deal Don t delegate payment negotiations to your salesperson Require the debtor to put it in writing; if they are not willing to do so, they re be serious about paying you 19 STALL TACTICS: EXCUSE AND RESPONSE E:: The check signer is out of the office R:: Please send a wire transfer E:: Our purchase order listed payment terms of XX days, so this invoice is not yet due R:: Our credit application is a contract and the payment terms have not been amended E:: We are prioritizing payments to creditors R:: Who is the final decision maker? 20 STALL TACTICS:, EXCUSE AND RESPONSE E:: You are harassing us for payment R:: Calling to ask for payment is NOT harassment E:: The decision-maker is out today (or this week) R:: Okay, so who does that person report to E:: We cannot issue payment because we are being audited R:: Okay, can I please speak to the auditor? 21 7

8 EXCUSES AND RESPONSES, CONTINUED Excuse: We need a copy of that invoice Response: If I send that to you in the next hour, when will the invoice be paid? Excuse: There is a pricing error on your invoice Response: Please immediately pay the undisputed balance Excuse: We are reconciling your account Response: I don t understand why this has resulted in a delay in payment 22 CONFIRM COMMITMENTS Confirm all commitments in writing Every time via Be specific in your message Why? Doing so puts you in a strong position if that commitment is broken 23 CUSTOMER DISPUTE AND DEDUCTION MANAGEMENT Presented by Michael C. Dennis, CPC, CCP, CBF, MBA Michael C. Dennis. All Rights Reserved 8

9 INTRODUCTION Dispute and deduction management is never easy No idea / technique will work every time Resolving disputes is time consuming, and labor intensive On average, deductions account for 5% of total A/R, but takes far more than 5% of your time This program is intended to provide tips and tools and techniques to better manage deductions starting today And give you more time to perform other tasks including collecting past due invoices 25 MY PERSPECTIVE ABOUT DEDUCTIONS Once the deduction is taken, the customer would prefer never to think of it again Deductions have little to do with future sales, and are normally a low priority for the salesperson Your co-workers may view your inquiries as a distraction We are the only group strongly motivated to resolve deductions - quickly Customers often limit authority to repay deductions The longer you delay, the harder your job will be In a sense, a deduction taken in error is an interest-free loan 26 MY PERSPECTIVE ABOUT DEDUCTIONS When a customer takes a deduction, we should consider the very real possibility that the customer is right The customer is not always right, and also not always wrong When your company is wrong, take action immediately When a deduction is taken, you should expect/require the customer provide supporting documentation immediately If you don t fix problems in your company that result in customer deductions, you ll be trapped in an endless loop 27 9

10 MY PERSPECTIVE ABOUT DEDUCTIONS Customers tend to place a low priority on repaying deductions taken in error Credit managers need to keep track of the number of outstanding deductions to ensure the workload is manageable The credit manager needs to investigate an significant changes in the type or the number or the dollar value of open deductions We need to have positive working relationships with co-workers whose assistance we need to resolve deductions If you are the credit manager, you should require monthly updates from collectors on the status of deductions over $xxxx ( a specific dollar amount ) 28 THE BASICS Collectors need to track each deduction including The next action step required The follow-up date Who you spoke to last What was discussed What agreement was reached--- if any Which person has the next action item What is the action required and what is the timeline or deadline If applicable, what is now required to get the deduction repaid 29 or otherwise cleared AUTHORITY Customers usually limit authority to repay deductions Your A/P contact usually does not have authority to repay -- even if you prove the deduction was taken in error For this reason, you ll need to document in writing why the deduction should be repaid Once you ve done that, you can follow up for payment as you would with any other past due balance Expect immediate repayment of a deduction taken in error 30 10

11 HOW TO AVOID DEDUCTIONS Some deductions could be avoided if customer PO s were examined more closely If the PO has errors, it should be rejected Consider this: We typically reject POs listing the wrong prices The same should be done if the PO includes the wrong payment terms, shipping terms, etc. 31 HOW TO RESOLVE DEDUCTIONS MORE QUICKLY 1. Allocate sufficient time and resources to resolving deductions 2. Document your research 3. Send relevant documentation to your customer 4. Follow up in the same way as any other past due balance 5. Document process workflows for the various types of deductions 6. Eliminate internal roadblocks that delay deduction resolution 7. Consider purchasing deduction management software 8. Make sure credits are being issued promptly 32 MORE TIPS Require timely responses from co-workers to your inquiries Track the number and type of deductions taken each month Ask the customer who must authorize repayment of deductions taken in error Follow up with that person if necessary Keep copies of the documentation you send to customers Make sure your documentation is clear, and your expectations are also clear 33 11

12 CONSIDER A WRITE OFF Most public companies have a policy of writing off small $ deductions In a cost benefit analysis, I believe the creditor is often better off writing off deductions Statistically, customers are likely to be correct or partially correct about half the time ( at least based on my own experience ) Writing off deductions is controversial I want to explain the rationale for writing off certain small dollar 34 deductions CONSIDER A WRITE OFF, CONTINUED Here are some direct costs associated with deductions: The cost to print the chargeback The cost of requesting supporting documentation The cost of researching the deduction The cost to generate the credit (if one is required) The cost to document the reason(s) the deduction should be repaid The cost to follow up with the customer for repayment 35 CONSIDER A WRITE OFF, CONTINUED Write-offs are not right for every company and in every situation Writing off deductions is a controversial idea, but let s explore it In reality, it usually takes just as long to resolve a $20 deduction as a $20,000 deduction Most creditors don t know how much it costs to resolve any single customer deduction The more deductions are outstanding, the greater the need to consider writing off certain deductions 36 12

13 FACTORS TO CONSIDER IN WRITE OFFS The more invoices are past due, the greater the need to consider writing off small dollar deductions Your backlog of open deductions Your current staffing level Your current workload The level of cooperation you get from other departments when researching deductions The dollar value of the individual deduction The complexity of researching the deduction 37 WRITE OFFS, CONTINUED Please don t take unilateral action A policy on write offs is a business decision Write offs tend to be far less than $100 We typically justify write offs of deductions by examining the cost of addressing deductions We need to also consider the opportunity-cost of chasing a small dollar deduction 38 DEDUCTIONS INVOLVING UNEARNED DISCOUNTS Some customers will take unearned cash discounts Most creditors charge back unearned discounts Unearned cash discounts are notoriously hard to collect Unless you have unusual leverage, you might consider writing off accumulated unearned discounts in return for a customer concession Note: Some customers actually use software that tests your sensitivity to unearned discounts 39 13

14 TIPS FOR CREDIT MANAGERS Be proactive; track and publish the number, the types, and dollar value of deductions Also report the percent of the time the customer was correct in taking deductions Monitor trends in the volume and type of deductions being taken Get involved by removing roadblocks that prevent collectors from addressing and resolving deductions rapidly Make sure your company is issuing credits quickly 40 TIPS FOR BETTER INTERACTIONS Get the facts first Thank the customer providing relevant documentation Apologize if your company made an error Provide all necessary documentation to enable to customer to repay a deduction taken in error 41 SENIOR MANAGEMENT MISCONCEPTIONS Senior management typically does not Know the average cost to clear deductions Is not enthusiastic about permitting write offs Does not know the size or dollar value of open deduction Does not know the amount of time being allocated to reviewing deductions Does not understand how other departments help or hinder the deduction management process Are not enthusiastic about rejecting customer PO s with incorrect information 42 14

15 BENEFITS OF USING DEDUCTION MANAGEMENT SOFTWARE DMS streamlines the deduction management process DMS can transform an otherwise paper-intensive process DMS makes it easier to store and access supporting documentation DMS creates reports on number, value and type of deduction DMS can accelerate and simplify the deduction management process DMS reduces the time and cost of resolving customer deductions 43 SOME FINAL REMINDERS The goal is to help you work smarter, not harder Many creditors are inundated with deductions today Deduction management is never going to be easy Resolving deductions is not simple We should take all necessary steps to reduce the number of internal problems that cause deductions Remember to measure and classify deductions We must address disputes and deductions promptly Remember that the older deductions get, the harder they are to fix 44 ABOUT THE PRESENTER Michael Dennis, is a partner in DC Associates, a consulting company specializing in helping companies manage risk and improve collections and cash flow. Michael s most recent book is Happy Customers, Faster Cash available at Amazon.com Michael Dennis can be reached at

16 THANK YOU Thank you for your time and attention. I hope that you found this program to be interesting and helpful. My strong recommendation is to try out as many of these ideas as possible as soon as possible. 16