I was looking for a way to help a member with aging accounts receivables and had a conversation with Vistage Speaker, Abe WalkingBear Sanchez, which was transformational. We look at collections as an accounting function when it needs to be a sales function. Managing Account Receivable is the process of completing the sale; the goal is to keep customers paying and buying.
WalkingBear is a Pueblo Indian descendent and the founder of A/R Management Group. In our conversation, what he told me made complete sense and can help you with your collections.
There are three types of customers that don’t pay:
- Type I are good stable customers that have the ability to pay but pay slow. They have a history of paying slow and don’t pay as part of their cash management strategy. Large corporations and government agencies use vendors as form of short term financing and do not pay late charges. Your best strategy is to call early, call often and work the relationship to get them to pay. Sales people are better at customer relationships than accounting people.
- Type 2 customers have problems: something went wrong somewhere. 70% of all past due are problems. Here you need to fix the problem—the customer isn’t happy, the invoice is wrong, they didn’t get what they ordered, etc… do not put them on credit hold because these are good customers with a problem. The other Type 2 customer has a financial problem: either temporary or short term where there is a reasonable explanation or long-term and serious. The serious ones are a 90% risk of loss and you need to take action fast because you have a good chance that you will not see your money. Divorce, death of a key person, bankruptcy is close. Barter, get the goods back, have the owner personally guarantee, etc… Do not extend more credit to them. The temporary financial problems you want to work with. Tell them, I will work with you. Don’t jump ship.
- These are the ones that are out to avoid payment. They are uncooperative, don’t take calls or return calls, they lie, break agreements, or skip out. You don’t want these customers. Give them to a collection agency.
Four Steps in Completing the Sale
- Contact the person who can tell you when you will be paid AND why you weren’t paid within terms. This is probably the decision maker that the sales person worked with. The salesperson needs to work relationship and collect the money to complete the sale.
- Ask questions. Listen. Determine what type they are. When you are asking questions, say, “by the way, our records show invoice # 123 on x date for $xyz has not been paid, can you help please?
- Make presentation based on type. For type 1, call early, call often, and be a friendly squeaky wheel. For type 2, if it is a system problem, fix it. If it is temporary financial issue, work with them and keep selling. If it is a financial serious problem, cut them off and improve on your position. For type 3 customers, send to a collection professional; the sooner the better.
- Close, repeat understanding, and follow up.
People buy from people they like and they pay people they like. So be likeable. This is a sales function; not an accounting function.
Use the 80/20 rule. Call the people with the largest amounts first.
Walking Bear, thank you very much!
