Take a Softer Approach When Engaging Customers
While the world is not unfamiliar with challenging times, many of us are navigating uncharted waters given current circumstances related to COVID-19. The global supply chain will feel the impacts for months, if not years, to come, and your methods of working with customers and suppliers to collect payment will likely need to adapt, too.
Many businesses are facing high levels of risk, including a prolonged unexpected cash flow crunch. That means some companies may not be able to pay their bills on time. Thus, this is a crucial time for the collections team in your organization. It’s a role that requires personal interaction with customers, but the reputation of “collections” sometimes precedes itself.
Foundationally, a collector is tasked with contacting past due accounts to secure payment. These can be very tense and confrontational discussions. Given the overwhelming concern of whether some businesses will be able to survive this pandemic, the last thing they are concerned with is paying non-essential bills. Even essential suppliers may begin feeling the pinch - no customers means no revenue, which means no income.
Businesses need to work together to partner on the future and not necessarily fixate on the present. Now is a time to provide support, which includes taking a more understanding approach to the collections process. I encourage complete transparency and urge you to foster strong business relationships that inspire loyalty. Transparency, in this context, is sharing information, finding creative ways to continue commerce, and providing a personal touch to current and future engagements.
Let’s consider four ways your organization can consider practicing compassionate collections.
Portfolio Management – Segmentation Reveals New Risk Landscape
Don’t go at this blindly. You’ll need to look at your data to consider your new risk landscape. Maintaining visibility into your portfolio is key to ensuring that you understand the financial and behavioral patterns of your customers. This insight is imperative to more effectively assess risk across your portfolio.
Portfolio management is not only applicable for customers with open, active accounts receivable. You should consider the entire customer master, which should include all active accounts – those who purchased from you at some point and may purchase again in the future. Identifying key risk attributes such as payment delinquency (D&B PAYDEX® and D&B® Failure Score) and your company’s DSO, as well as implementing scorecards and personalized scoring models will aid in re-segmenting and re-scoring your customer portfolio for risk.
So many companies prioritize collections by “oldest and biggest” – who owes the most and is the latest past due. This approach makes sense in theory, but the truth is, the longer an account remains delinquent, the less likely they’re going to pay. Reprioritizing collections based on your new risk landscape can yield insight on which accounts should be contacted and given payment options.
Choose a Softer Touch When Communicating With Past Due Accounts
Once you can better see who is now at a higher risk and who isn’t, you’ll be better able to practice compassionate collections. This way, if a customer seeks to renegotiate terms, you’ll know if you can be more flexible. Remember, however, your previously high-risk customers (those who paid late in the past) would likely remain high-risk despite COVID-19. It’s those formerly low-risk customers who are now experiencing hardship and financial distress – when they become high-risk, I suggest you continue to treat them as “good” customers. Don’t start with aggressive collections tactics such as a phone call three days after their payment is due.
I’m not discouraging calls altogether, but they should probably be the last resort. Putting people on the spot may escalate an already tense and frustrating situation, and you don’t want your customer to get defensive. Calls can be conducted as information gathering sessions or creative discussions on how businesses can help sustain and look towards a partnership that ensures growth.
I suggest using email – it’s a softer touch and you have more control in the message. Email reminders are a great way to stay connected with your customers, and they provide the right amount of human touch at a reasonable frequency (I would suggest no more than twice a week).
Update your email templates to be more understanding of macro and micro economic events impacting your customers’ ability to make payments. Most companies have already issued a business continuity email to their customers outlining their response to COVID-19. Payment reminder emails should continue in that compassionate and empathic vein. They’ll be better received and will better help to secure an ongoing partnership.
The world will overcome this pandemic, and our ability to succeed in a post-COVID world will depend on how we work collectively to interact and conduct business.
Create New Customer-Centric Collections Campaigns
When you manage your overall portfolio, you can glean valuable insights to develop new strategies. For example, portfolio segmentation based on financial risk can help you create new collections campaigns in response to COVID-19.
Consider an alternative strategy based on DSO. For example, if you have a desired DSO goal of 45 days, develop a strategy to focus collector activity on those accounts with DSO over 45 days. These customers may not present financial risk, but they are paying you beyond your expectations. This is an opportunity to revisit the overall business relationship and see if you can move your business to more of a preferred or critical vendor status to maybe get payments in more quickly.
Again, lead with compassion to ensure you are maintaining flexibility for your customers and business partners without fracturing relationships. Businesses are focused on working capital, and creativity on how to ensure your business is viewed as key or critical is key to accelerating payment and reducing DSO.
Of course, when you can’t be flexible – remain compassionate. Maybe your company can offer extended terms to net 45 or even net 60 for some customers (while remaining compliant with US price discrimination laws outlined in the Robinson-Patman Act). If a customer consistently pays 120 days late, and you know you can’t offer net 30 anymore, it’s time to mail them a letter stating that their next order will need to be prepaid, and to call you with any questions or concerns.
Focus on Your Team
Beyond the concern you have for your customers or business, certain strategies and campaigns can also make your employees less stressed during difficult times. Collections can be considered a thankless job, and so it’s important to guide your team properly with a solid strategy. You don’t want collectors arbitrarily creating their own workflow – they could be contacting the wrong customers or using aggressive tactics based on past guidance that aren’t appropriate right now.
If you use alternative campaigns (such as automated emails over phone calls), you have an opportunity to free up some of your team’s time, which might be best used to catch up on administrative work, reconciling disputes, addressing adjustments, and providing updates and reports.
Collectors have a tough job, and I suggest using any potential downtime to show compassion for your team. Our ability to find good during trying times is what motivates and encourages employees.