If you don’t make things happen then things will happen to you. ~ Robert Collier
Every business has a recovery policy. If you don’t create one yourself, your customers will do it for you.
With this in mind, it’s important for any business to develop a Cash Flow Recovery System and to realize that the effects of any long-term improvement in an organization will not be seen without a consistently applied process.
Many debtors are like children, testing your limits to see what they can get away with. Empty threats teach your customers that non-compliance pays off. In addition, not following through weakens any threats you may make in the future.
How you set it up the particulars of your recovery plan is up to you. What’s important is that you set up a Cash Flow Recovery System and you consistently utilize it and follow through. FOLLOW THROUGH is so key it bears repeating in all caps — say what you will do and do what you said you would.
Following through sets clear boundaries for your customers and creates a cash flow solution for you.
SAMPLE RECOVERY PLAN (for one level of risk)
The “Customer Satisfaction Verification Letter” (sample below)
It is important to begin communication with your customers early and detect any potential problems with their order. This is where the “Customer Satisfaction Verification Letter” comes in.
Bad debts can arise from simple disputes and convenient memory loses. It is wise to also include your credit terms and conditions agreed to by the customer along with a copy of the invoice. The “Customer Satisfaction Verification Letter” eliminates any excuses for your customer to not pay an invoice.
Effectively, you are closing all possible problems and excuses that could cause delayed or non-payments thereby making the collection process easier.
- Step 1: Products and/or services delivered along with an invoice specifying the due date and a “Customer Satisfaction Verification Letter”
- Step 2: “Customer Satisfaction Verification Letter” is sent immediately following delivery of products and/or services along with an invoice specifying the due date
“Customer Satisfaction Verification Letter” Sample
Dear Mr. Customer,
Thank you for recently allowing us to be of service. Our customer service is extremely important to us and we wanted to make sure that you are completely satisfied.
Please take a moment to let us know if the delivery was on time, whether the PO matched the packing slip or invoice and if our merchandise and/or service meet your expectations.
We encourage you to let us know if there is anything else we can do for you.
Customer Satisfaction Team
The “Reminder Letters”
(samples of all dunning letters can be found in our e-book, “Secrets of Cash Recovery” in the resource section, beginning on page 73)
Should an invoice become past due, it is especially important to set the tone early in the relationship with the debtor by bringing the problem firmly, but professionally to their attention. It is possible that the customer is testing you as a new vendor to see how sensitive you are to delays in payments so he can extend his cash flow to its maximum at your expense. Use our sample letters as a guide will reduce your DSO and improve your cash flow; the life blood of any business.
- Step 3: 35 days after receipt of goods or services, reminder letter #1 is sent
- Step 4: 45 days, reminder letter #2 is sent
The “Pre-Legal Department”
You have told your customer that at 60 days past due you are going to assign the account to your Pre-Legal Department. At the end of the 60-day run with the letters from the previous section, it is important that you change stationary by getting a rubber stamp that states “Pre-Legal Department”.
You will now begin to send your dunning letters with the Pre-Legal Department stamp and have a senior credit collection person handle the matter from this point on. The letters will become stronger and the phone calls will demand payment.
These letters should be used with care only when the account warrants it. And, it is imperative that you pre-warn the customer prior to the Pre-Legal run of letters that you are going to do so. On the exact date you say you are going to assign the account to the Pre-Legal department, send the first letter and make the first phone call.
- Step 5: 60 days, send reminder letter #3 mentioning the Pre-Legal Department
- Step 6: 90 days, Pre-Legal Department is utilized with a series of escalating letters warning legal action at 120 -150 days (pick a time frame that works for your company and stick to it)
The “Outside Service”
- Step 7: 120 – 150 days, past due account is sent to an outside service (collection agency, lawyer, law center, etc.) in order to realize a higher return while paying lower fees to the outside service
Having a plan, complete with different treatment plans for different levels of risk, in place will create consistency and remove guesswork. Providing standard templates for written communication and scripts, or talking points, for person-to-person contact is a valuable tool in your Cash Flow Recovery System. This kind of preparation will make your collection efforts more effective and less stressful.
Please visit Dynamic Legal Recovery’s website or call us at 877-777-7564 for your complimentary evaluation.