The Five C’s of Credit and Collections Management

If you have worked in this industry log enough, I am sure you have heard of the five "C’s of credit: Character, Capacity, Capital, Collateral, and Conditions.
However, that is simply factors to take into consideration when determining the creditworthiness of a customer.

Today, I want to bring to your attention the five C’s of Credit and Collections Management. Those five C’s are:
Customer Service, Calmness, Credit, Contact, Customer Service, Calm, and Collect.

Credit

Now we are finally getting into the job itself. Credit reports, credit terms, and credit limits. Credit is the first C, and credit is the most important of all the C’s when it comes to accounts receivable management.

This area can make or break you. This area will determine how liberal or conservative you are with your terms, which will determine how quickly cash comes in the door (or doesn’t), and how much time effort and energy you have to put into chasing down customers after the fact.

If you can only focus your time and energy on one area of accounts receivable management, focus your efforts here.

Customer Service

While credit might be where it all starts, there is no single factor more important that Customer Service in the accounts receivable department.

If there is one thing that is misunderstood when it comes to credit, collections, and accounts receivable teams is how big of a factor they play in the overall customer experience. The misconception is that they need to have their interactions with customers minimized, because they don’t have what it takes to give exceptional customer service. And, if they do speak to a customer, all they are going to do is upset said customer, risk losing that customer’s business, and those invoices might go unpaid anyway.

That is all a misconception and just a false statement. Customer service and collections go hand in hand. Customer service is EXTREMELY important when it comes to collecting on past due invoices.

What do you think will happen if a customer was called, and immediately was screamed at for being late on an invoice? You would be out of business because your existing customers would all leave, and your reputation would be ruined. That person would be fired, but the damage would be done.

Despite this, there are millions of people that work in the accounts receivable world. Every company out there has someone monitoring accounts receivable information. Everyone has someone that makes calls when customers are late. If people are operating in a way that matches the example above, they are simply not good at their job, and should be encouraged to find a new field.

What do you think happens when you call, speak politely, and always remember that they are not just customers, but people on the other side of the phone or computer screen? The saying goes that you catch more bees with honey than vinegar, and no one knows this better than people working in credit, collections, and accounts receivable.

The argument could easily be made that there is no one group that touches more customers than the accounts receivable department. Maybe it is customer service, but maybe those orders are placed electronically and they don’t speak to anyone. Maybe it is sales, but maybe there are accounts too small for sales reps to speak with consistently. However, all those customers have their credit checked and account set-up by the accounts receivable team. All of those customers receive invoices from the accounts receivable team. All of those customers speak with accounts receivable when they have a dispute. All of those customers receive a call or email from accounts receivable if there is an issue with their payment (or the payment is missing).

Your accounts receivable team should be full of people that know how to give excellent customer service, have great personalities, and are not afraid of contacting and speaking to customers.

Contact

It is hard to have excellent customer service if you don’t contact your customers. Unfortunately, sometimes, you have to actually put on the black hat, and make those calls or send those emails.

No one wants to do this part. No one wants to be the bad guy calling to ask for money. That is the entire reason accounts receivable departments exist. It is the reason there are so many software options out there that automate this. It isn’t just to streamline and automate what can be streamlined and automated. It isn’t just about ensuring customers are reminded. It happened out of necessity because there are not enough people to do the job the right way.

Keep in mind though, this is money that is due. This is money that is owed. You agreed to generously offer to sell your goods or services without needing to receive payment upfront. Now, the agreed upon period has passed, and now it is time for payment to be remitted. It is easy to ignore an automated email from a robot. Some customers might even have those filtered to their spam or trash folders.

Why are you so afraid to reach out to someone and ask them to pay their bill? This is where the ball gets dropped. Not because we don’t think people need to be reminded to pay us, but because we don’t want to offend anyone. Don’t think this just happens when you don’t have an accounts receivable team. This happens by the very people that work in your accounts receivable department. It happens with the collection specialist, whose entire job is to call about past due invoices.

This is not for the faint of heart, but it is necessary, and you have to do it. You cannot survive and get paid, if you are not contacting those customers that owe you money.

Calmness

Calmness goes right along with Customer Service and Contact. Calmness under pressure. Calmness in the face of adversity, also known as angry customers.

To be blunt, no one likes to be called and asked for money. Think of the customer service section as you setting the tone for the conversation, and calmness as how you react when the customer responds negatively to you.

When money is involved, it is easy to let your emotions get out of hand. Even when giving great customer service, the responses you receive from customers may not be what you wanted to hear. You may detect that they are misleading you, or they are trying to take advantage of the situation.

This is where you have to be the adult in the conversation. You can be direct and to the point. You can give all the facts. You can ask for the money and when it will be paid. You can even let the customer know what is going to happen if they continue to not pay their balance that is due.

However, your goal throughout those conversations, whether speaking on the phone, or electronically via email or text, is to remain a calm, straightforward, and matter-of-fact presence. You have to rise above the situation, and just kill them with kindness along the way.

You would be surprised how much killing people with kindness actually works. Not only can it help to deescalate a situation, but it can also help in opening the door to conversation, which leads to an understanding, and results in payments being sent out.

This is not an easy task. It is one reason people think accounts receivable teams are just yelling and angry at customers. Those individuals know they couldn’t do this, and so they are assuming the accounts receivable team cannot as well. And when you get those comments and feedback from internal people, the same way comments are made by external customers, all you can do is remain calm, and kill them with kindness.

Collecting Payment

This one seems like it should be pretty obvious doesn't it? It is the final step, and it is what you have been striving for this entire time.

When it comes to actually collecting payment from your customers, you need to make sure you have all your options covered. Accept checks, accept credit card, and give them the information they need to wire or ACH funds to your account. Talk to your bank and credit card processor about e-checks and credit cards over the phone. Does your business model allow for auto debits of your customers accounts?

If the customer is delinquent, who is going to collect? When are you trying to collection inside your company? What is your threshold to place the customer on hold if you haven’t collected payment? What is your plan when things aren’t progressing? Are you just going to write off the bad debt? Will you send it to a collection agency? Will you take them to small claims court? At what point do you send the collection process to a 3rd party collection agency?

It is not just collecting payment. It is all the ways you will collect payments. It is not just about asking the customer to pay you, but the manner in which you will go about it, and the escalation process when (not if) a customer doesn’t pay you when and what they committed to pay.

This is the final step in the process, but as you can see, there are a lot of moving parts once we get here. It is vital you have this processed buttoned up. Will there be exceptions? Of course there will be exceptions. There are exceptions for every single customer in every single situation. However, that should not stop you form having a plan, and having a course of action to follow.

Those are my five C’s. Are there any C’s I may have left off?