The White Elephant in the Room – Collections

Today I want to cover a subject that is the Rodney Dangerfield of small businesses and their owners.  No, I’m not talking about your boss’s bad breath, nor his shirt/tie combinations (which in reality, never combine), nor are we talking about how she always repeats herself when giving you instructions.  No Virginia, what I want to discuss today is the White Elephant in the room for many small business owners – the dreaded C-word: Collections. 

Did you hear the story of the successful company that was horrible at Collections?  Neither have I because that company doesn’t exist. It’s similar to the fabled Leprechaun with a pot of gold at the end of a rainbow – but different than fables, which typically have a background of truth – there is no truth to linking success to poor Collections. Being bad at Collections is one of the quickest and easiest ways to run your small company into the ground.  Make no mistakes about it – Collections have to be part of your manifest destiny, your Mission Statement, your company DNA – or whatever – they’ve got to be there up front and in focus 24/7. Anyone who tells you otherwise is being just plain foolish.  

You work so hard to sell – why don’t you put half that energy into Collections?  You deserve to get paid. And besides, who wants a bunch of client beatniks that don’t pay?  They’re not clients – they’re more like family members that borrow money and because they’re family, somehow, think it’s OK to not pay you back.  But in reality, “good clients” are also “good payers”. And bad clients, are not only bad payers, but they’re just plain bad. And you need to figure out a way to distance yourself from them as quickly as possible.

So, what’s the problem with Collections, and why do so many companies have a difficult time being good at it? Well to start, there are a handful of misconceptions on the subject and how to actually do it well. A very short list of some of the more famous ones that I’ve come across include:

  • Uncomfortable asking to get paid – this sounds like your company is apologizing to have to get paid. There’s nothing to apologize about, you held up your end of the bargain by delivering products and services to your Client, now it’s their turn to do theirs. No reason to apologize or feel uncomfortable – again, it’s your money anyway. Where’s the confusion here?
  • Afraid to come across as too pushy – Clearly there are good ways to execute Collections properly so that you don’t come across as pushy, nervous, or desperate.  None of these are good, and I’ll provide some tips on Collections later on in this article. But again, in Collecting you are merely asking for something due to you, so asking should not be confused with being pushy – so ask away, since…it’s your money anyway (did I already say that?).
  • Don’t want to pressure the Client as it might negatively impact future sales – This is one of the biggest shenanigans you can ever hear when it comes to Collections. I had this conversation with a client of mine last week… I said to him “Dude..if they don’t pay you, they already are a bad client and you shouldn’t want to sell to them again in the future, so don’t feel bad about pressuring them to pay you.  It’s your money anyway (I keep coming back to this. Hmmmm…seems like a pattern).

Clearly, you get the message since this is becoming a bit redundant, but I want it to be so clear and that there are no mistakes about the importance of Collections:  it’s your right, your #1 job, and again…your money. So, go get it.

Like many things in running a small to medium sized business, performing Collections elegantly is more of an art, even though you have to use science (aka, technology) to help you do it right.  A company good at Collections makes it look easy – it’s like those guys in the tight pants in “Dancing with Stars” floating effortlessly dancing the Tango. Dancing the Tango is not easy (just ask Al Pacino), and if it looks easy, it’s because they’ve practiced and perfected their technique. And that’s the same approach you need to have about your company’s Collections – hone it, practice it, and perfect it. 

So how does one do that?  You perform the following Tango steps in your Collection process:

  • Start early BEFORE your invoices are due…preferably 1 week before their due date.
    • Use your technology to signal you the exact date 1 week prior to a certain payable becoming due.
    • Be polite!  I can’t stress this enough.  I recently received an Email telling me I was overdue on a payment that I had just received two days prior.  I cringed at the thought of being labeled a deadbeat and replied with a snotty Email. Dumb mistake on my part which took more than a month to correct.  So, don’t make the mistake to begin with – be polite, calm, and non-threatening as part of Step #2 in your Collections process.
    • Use non-accusatory language – after all, this is just a reminder of a payment due, right?  
    • Use the language “friendly reminder” when referring to an upcoming payment.  Who can get their nose out of joint when someone starts an Email out by saying …”as a friendly reminder”…?  You are being nice, polite, amicable, and non-accusatory – and you’re just “reminding” them. So up to this point, no worries. 
    • Give them all the tools they need to NOT screw it up:
      • You send them their invoice (just pretend that this is the 1st time they are seeing it and that way, you won’t be frustrated before you even start out…). 
      • Tell them the date its due.
      • Tell them the amount that’s due.
      • Show them how to pay you.
        • Provide banking details for a Wire transfer or ACH Payment.
        • Give them a handy link to an immediate pay service like QuickBooks or PayPal. 
  • Once you’ve done that, monitor the status of the payment and send them a reminder 2 to 3 days before its due.
    • Use the same language, and if you feel it necessary, repeat steps A thru E above in at least one of your reminders.  Remember – up to this point you’re not yet collecting – you’re just reminding them (sounds like me to talking to my 7-year old – “I’m not telling you I’m just reminding you…) that a payment is coming soon, and that the timely payment is important to you, and it is your expectation that it will be made on time, and implicitly – NOT late.
  • On the due date, Call them
    • Identify the Accounts Payable person and call them personally.  If you cannot speak to them, because these cats can sometimes be rather slippery, do these 3 things:
      • Leave a message with their assistant – i.e., speak to them personally (no Voicemails — be persistent).
      • Leave a message on THEIR Voicemail.
      • Follow-up your Voicemail call immediately with an Email saying “…tried reaching you by phone unsuccessfully to remind you of payment due today on Invoice #1234 for $10,000.” Please kindly remit payment as it is now due”.  Again, give them the tools to make the payment: reference the Invoice number, the amount, and the due date, AND that you need them to pay immediately.
  • If after all the above, and on the Due Date you do not receive payment, you must now do the following:
    • Send another Email, copying their direct supervisor, and the Salesperson or Key Account managing the Client.  Provide all the information as detailed above in “Give them all the tools they need to not screw it up.”
    • Tell them this payment is due immediately.
    • Ask them to send you confirmation of your payment (this can be a Wire or ACH confirmation from their bank).
    • Call them…again.  Be patient, non-accusatory, and ask them if they have everything, they need to make the payment?  And then kindly ask them to do so.

Now here is where you need a little bit of finesse to understand how much a “reasonable” amount of time is (in days) to allow for your Client to elegantly get themselves out of this jam and pay you?  This will vary by Client (and depend on their size, the closeness of your relationship, and lastly, how important they are to you and your company) but keep one thing in mind: don’t give up. There is no such thing as a good client who doesn’t pay.  If they don’t pay you for your hard-earned products or services, they are beatniks and you need to do some serious introspection on whether you really want them to continue to be a client going forward? So look at yourself in the same vein as Donna Summer when she says “she works hard for her money so you betta treat her right” and that means – at your company you insist that your Clients pay for your goods and services on time (or preferably, even earlier).   

If, after all your hard work, as laid out in excruciating Collections detail above, you don’t get paid, then it’s time for a showdown.  You’re stuck with the difficult decision which boils down to one of three options: #1 Scaling it — if there is anywhere else to scale it, and for most small businesses there is since Payables is often handled by a manager or a department.    #2 Suspend new Sales until full settlement of all past due invoices is made. This will send a serious message to your Client that you’ve reached the end of your patience, and if they want to continue to be in good standing with you from a Sales perspective, they better fess up and pay you. 

And lastly, when all else fails:  #3 Take it to a Collection Agency.  I’m a firm believer in working with Collections Agencies rather than working with your attorney.  The simple reason is that they do this all day long and just plain know how to get the job done. With all due respect to attorneys, and I sincerely hope you have a good one (because I do, and you should too), but they are typically dedicated to helping you with issues more related to Corporate law.  Collections is a business all its own, with laws varying by State, and certain very powerful mechanisms many of which are available only to Collections firms. Collections techniques of persuasion, much like those used by a good salesperson, are honed thru years of Collections cases. As a result, if push comes to shove and you and your company find yourself needing to take legal action – enlist a trusted and experienced Collections firm to handle the job for you.  That way, you can go back to doing whatever it is that you love doing in your company – which I suspect is not Collections (unless you own or work in a Collections firm), and leave the Collections to a trusted and competent firm or agency.  

To learn more about how business owners can scale and drive more growth, through tools like Factoring and other important considerations, please check out the list of blogs on this website, or you may contact us directly at info@eifunding.com. You can also find me on Twitter and LinkedIn.

-Ernane