In Collections, a Little Communication Goes a Long Way

Fortunately, a little attention paid to bettering your practices goes a long way. Even a small increase in your collection percentage can have a dramatic impact on the bottom line. Moreover, some of the most effective steps you can take are simple ones, such as improving communication and cooperation regarding credit and collections issues. The following are low-effort ideas that can yield high-impact results.

Communication Is Key

Communicate your credit policy clearly. Your credit policy should be a tangible document, not word-of-mouth information that changes from day to day. Make sure each department affected by the credit policy is aware of it. This includes sales and marketing , customer service, operations, collections, shipping and quality control. Also, consider involving these groups in developing or revising the credit policy when appropriate. Doing so will make them feel more vested in its success.

Help ensure your policy is accepted by keeping it simple, easy to understand and accessible. Posting guidelines on your intranet will also enable employees to become familiar with your requirements, and they won't have to call credit and collections staff every time they have a question about it.

Educate all employees involved in the process. Credit and collections professionals are not the only ones who help ensure the company gets paid in a timely manner. Numerous employees are involved in converting orders to cash, and they must all understand the importance of their individual roles. Therefore, it can be helpful for credit and collections professionals to participate in training fellow employees on how to avoid common errors during the initial stages of customer contact. As anyone who works in collections knows, the 1 percent that is not done correctly at the outset can cause 99 percent of the challenges when the time comes to collect what is owed.

Work as a Team

Encourage collaboration between sales and credit and collections. It's important for staff working in these two functional areas to recognize their interdependence and build a supportive relationship. Cooperation begins at the start of the sales process. Encourage salespeople to set payment expectations with customers and prospects when a proposal, estimate or contract is delivered. Make sure sales professionals know the most important points to cover: when the company expects to be paid, any incentives that may be available for paying early or in a preferred manner, penalties or interest on past-due accounts and policies for dealing with delinquent accounts. By presenting this information as part of the sales process, issues can be brought to the surface that, if left unaddressed, could lead to payment problems later on.

Also, encourage sales staff to follow up with customers after an invoice is sent. Some companies ask their salespeople to call clients to thank them for their business, verify that they received their bill and inquire if they have any questions. This practice allows the company to quickly address any problems with billing or customer satisfaction.

Set the example. Good credit departments drive sales. While they don't want to be too liberal in extending credit, they also don't want to be viewed as a roadblock. Credit should be perceived as a tool that can help your company solidify and build sales while preventing salespeople from spending a disproportional amount of time on prospects who aren't qualified.

A sure way to improve the credit department's stature is to set high standards for promptness when acting on requests and answering questions. Nothing frustrates salespeople or customers like a lengthy delay while credit is evaluated. Set a goal for responding to credit requests. For example, have your credit team institute a policy of responding to requests within two hours.

Credit departments should also be vigilant in helping their companies spot troublesome patterns. Rather than waiting to raise a red flag until a customer is delinquent and a new order has just shipped, provide regular updates that highlight accounts at risk. This will also help salespeople prioritize their efforts.

Motivate the Troops

Utilize incentives. Some businesses find it effective to use a bonus structure that rewards employees for helping to achieve prompt payment goals. Some choose to limit incentives to collections staff while others extend them to salespeople or those involved in order fulfillment.

Companies that use incentives effectively design them to promote teamwork and motivate employees to adopt the right behaviors. An example would be to encourage salespeople not to focus only on making the sale but also on gathering good information for credit purposes and following up with customers after the sale. Even companies that don't use financial incentives can incorporate goals related to credit and collections into individual performance reviews.

Track and promote results. Every company should track its success with credit and collections. The most effective measures will be those that relate to your company's goals and meet your specific information needs. Of course, certain measures, such as the collection effectiveness index and days sales outstanding, are widely applicable.

Measure Success

Share key performance indicators with company executives, and make sure your team members understand their roles in improving them. When possible, convey successes in dollar amounts and link improvements to specific actions. Credit and collections departments with excellent performance excel at communicating with staff at all levels and across departments about what's working, what's not and why.

Ask for help. Maintaining cash flow is essential to business prosperity, so don't let the collections process slide, even if sales are expanding and the credit side of the business is demanding more attention. Many companies make the mistake of postponing collections during particularly busy periods. Consider bringing in temporary professionals to maintain productivity levels. This will ensure that your business remains top-of-mind with the customer who is trying to decide whom to pay first.

Improving the credit and collections process is an area that benefits from continuous attention and information sharing. Make it a point to periodically review your practices in light of economic shifts, as well as changes in your industry, client base and other business-specific factors. Any time your practices don't seem to be working as well as you would like, don't hesitate to take action. An effective credit and collections function is critical in helping companies manage risks and seize opportunities for growth.