Chapter 26
 Collecting What’s Yours

Some of your clients or customers, or perhaps even friends or relatives, may be trying to take you for a ride. I didn’t want to have to be the one to break the news to you, but somebody’s got to tackle the tough assignments. Without telling you in so many words, some people who owe you money may decide that you’re going to have work hard to get it. This is when it literally pays to be assertive.

As you’ve seen in some previous chapters, it’s sometimes necessary to go beyond the essentials of assertiveness, wherein everyone feels good about the encounter. As with poor customer service, un-neighborly neighbors, and harassment and discrimination, your interactions with slow or non-payers may not leave all parties with smiles on their faces.

Convincing People to Pay You

The nineteenth-century philosopher John Ruskin once said, “In touching money we touch the keystone of character.” Wow, did he get that right. It’s easy to get upset about the money others owe you, until you acknowledge that you train people how and when to pay you. You either have a coordinated, assertive policy in place, or you have a less than adequate approach to collecting what you’ve earned.

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 Make It So
To put it bluntly, you’ve got to convince the slow payers that the pain of paying you what they owe you will be far less than the inconvenience that they will experience—courtesy of you—if they don’t pay!

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That’ll Be 60 Dollars

Have you noticed how many doctors and dentists have adopted a policy of asking you to pay right now, on your way out the door? Have you considered how many new opportunities there are to use your major credit card at places that aren’t even oriented toward retail sales, from the pledge you make during a public television fund-raiser to the pre-made popcorn you order to help a local service organization?

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 Just the Facts
According to the Marist College Institute For Public Opinion, the number of Americans having money troubles is rising. In their 1995 survey, for example, 20 percent of respondents said that they always have money problems. A year later, 32 percent responded as such.

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An Industry Unto Itself

There is a good reason for the demand for immediate payment and acceptance of credit cards as a form of payment. The experience of most businesses is that collecting payment is a difficult, time-consuming activity that is best avoided or, in some instances, left up to the credit companies that specialize in such activity.

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 Just the Facts
Collecting debts has become a large enough problem to merit its own industry; consider collection departments of sizable stores and companies, independent collection agencies, and accountants and lawyers who specialize in collection problems and litigation. Nationally, delinquent accounts turned over to collection agencies total far more than $20 billion per year, with an estimated additional $25 billion that businesses simply absorb. The collection industry estimates that between 3 and 5 percent of consumer debts and 2 and 4 percent of commercial debts go bad.

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The paradox for businesses faced with collection problems is that if things are going well otherwise, it’s not hard to overlook a few slow payers or non-payers. If things are going badly, who wants to devote an inordinate amount of time to a task hardly anyone finds enjoyable, especially when there are too many other things to do? When you have to collect from a friend or relative, it’s easy to overlook the debt when you don’t need the money, and perhaps embarrassing to handle when you do need the money back.

A Dollar Earned Is Not a Dollar Collected

Two women in Oregon started a firm called Northwest Communications. This was the first such firm in their small but growing city. They were able to fill a service vacuum with no competition, and things seemed rosy. The firm soon grew to four full-time staffers, many part-time employees, and a healthy roster of contractors who could be called upon as needed.

Traditionally, you don’t ask for payment “up front” in this line of business or as a client is walking out the door. Rather, contracts are signed that include progress payments.

The company dutifully sent invoices as these segments were completed. When customers didn’t pay and had to be re-invoiced and phoned, things really got crazy. “I didn’t want, and couldn’t afford, to work nearly full time chasing down bad accounts,” one partner said, “but that’s what was happening.”

Two years into the business, the region’s economy went into a tailspin. Debtors became slow to pay. Some clients filed for bankruptcy and never paid. Others paid their other creditors first, knowing that Northwest Communications would never spend the money or time to really “go after” them.

“The cash flow problem was our downfall,” explained the partner. “Oddly enough, we had plenty of clients. We just didn’t collect enough of what we earned to pay our bills in time. The business closed just before its third anniversary.

You too may find yourself awaiting repayment from others, funds that could help you when you’re in a cash crunch.

The Slower an Account Becomes . . .

It’s a truism of business (and of personal loans) that the slower-paying an account becomes—the slower someone pays on his bill—the more difficult it is to collect. The following table shows the percentages that companies actually manage to collect after certain amounts of time. The amounts unpaid are due to debtors simply refusing to pay any more and companies giving up.

Collection Difficulties Over Time

If you can collect payment in full upon making a sale, you will eliminate much of the need to be assertive about collections later. If you’re in a profession or industry where it’s commonplace to extend credit, however, you’ll need to take action to ensure that your customers are current in their payments.

Without getting too much into hard business, here are some options:

• Obtain a credit report before you extend credit to someone. A party’s credit report contains key information that indicates whether that party generally pays on time or not.
  
• Obtain at least a portion of the fee or charge right away. You might require a deposit, for example.
  
• Require progressive payments, such as one-third of the estimated fee at the start of a project, another third at some agreed-upon midpoint, and the final third upon completion.

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   Handle with Care
  Collecting quickly is usually to your advantage. There are exceptions, however. It’s not wise to offend a possibly lucrative, long-term customer because of injudicious collection efforts. It is also bad business when industry norms and customer expectations call for an entirely different approach. Can you imagine trying to collect from a widow the day after the funeral?

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• If you work on a retainer basis, arrange to have clients transfer your monthly fee into your business account via electronic funds transfer.
  
• Send out your invoices promptly.
  
• Reward prompt payers with an “early bird” discount.
  
• Levy a surcharge on late payers.

Different Kinds of Debtors

Going after people who owe you money is one of the world’s greatest drags. Deadbeat accounts require a great deal of assertiveness, the kind that goes beyond having both parties feel good about the transaction. It often means letters, phone calls, and perhaps even aggressive tactics.

What Type of Debtor?

Debtors, whether in your business or personal life, can fall into one of four categories:

1. Debtors who are negligent. These debtors have the money and intend to pay, but need reminding.
   
2. Debtors who are honest but confused. Occasionally you encounter some debtors who would have paid on time if they had understood the terms.
   
3. Debtors who won’t show you the money. These debtors have the money but make everyone wait or are under-financed and survive by paying slowly.

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    Handle with Care
   Collections usually generate a lot of frustration and plenty of dead ends. If you give up, you don’t get paid. If you hang on, you spend a lot of time trying to collect, and you irritate those who hate to see you coming.

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4. Debtors who cannot pay. These debtors say they are temporarily overextended, when in fact they are close to financial ruin.

I Feel for You

Another way to categorize non-payers is according to how you feel about them, and hence how you’ll proceed to collect your money. It’s more emotional, but often works as well as more rational approaches.

1. With kid gloves. Clients who get the kid-glove treatment are those who represent a long-term, viable client who can reward you with more profitable business and/or referrals. With this group, you proceed slowly, carefully, and definitely politely. You treat the money owed as if it were simply an oversight and as if it represents no big deal to your business. You would, however, certainly like to “bring the account up to date.”
   
2. With shuttle diplomacy. This approach is reserved for those slow payers who just miss the cut for the kid-glove approach. You’re not sure if they represent more business or will provide good word of mouth. They are not contentious, however, and there’s no need to jeopardize your relationship with them. You simply like to conduct your business efficiently, including receiving payment in a timely manner.
   

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    Handle with Care
   Your closest relatives would probably be afforded the kid-glove or shuttle-diplomacy treatment (at least at first!)

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3. With boxing gloves. You put on these gloves when there’s little chance of repeat business, and you wouldn’t want it anyway. With these holdouts you make contact frequently and forcefully, while remaining professional. Your objective and message are clear—to get your money. Here you use a wide variety of tools including mail, phone, and fax in a swift flurry of punches.
   

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    Handle with Care
   Resort to the boxing-glove or swat-team approach when the amount owed is significant and the relationship insignificant, and it was a mistake to ever loan the money to this person to begin with.

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4. With the swat team. You use swat-team techniques when boxing gloves don’t work. The business relationship with this customer means absolutely nothing to you. It’s your money and they’re holding it. All weapons in your collection arsenal are assembled and lined up at the border. These include lawyers, hints of lawsuits, and collection agencies. You let the deadbeat know that you will never let up, the psychology being that it becomes less “painful” for them to pay you than to continue to be subject to your controlled but intense effort to get your money.

Collection Campaigns

There is no foolproof way to ensure that you get your money regardless of the category of debtor. Here’s a system, however, that has worked for many people. Think of your collection campaign as having three chronological stages:

1. Initial agreement
   
2. Polite reminders
   
3. Aggressive strategies

Let’s discuss each of these stages in more detail.

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 Handle with Care
A customer who is slow to pay for work or goods delivered is likely to be just as slow to pay for various parts of the work or goods during the life of the agreement. Consequently, you might end up in a position of “trying to collect” for one segment. Your leverage is that the customer may want to see the finished work or product badly enough to make segmented payments in a timely manner.

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Initial Agreements

Depending upon the product or service in question, it may be possible, although time consuming, to work out an initial agreement about payment terms before work starts. This usually entails some mutually agreeable payment schedule, as discussed earlier. You can introduce such an agreement almost regardless of the size or clout of the customer.

Although the initial agreement may also carry a deadline for final payment (for example, 30 days after completion), don’t expect to be immune from delays and excuses. Partial payments with friends or relatives can work, but they have their pitfalls—you might encounter someone who falls behind in making each payment. A written repayment schedule will help keep payments on track. Both parties should keep a copy.

Polite Reminders

Here is when you get to test your mettle. You issue polite reminders when someone starts to fall behind in what they owe you. You can start with follow-up letters, but keep in mind that too many people resort to letters when a polite personal phone call would be faster and easier, depending on the situation. (More on this shortly.)

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 Make It So
Your notices are most effective when they’re sent directly to the department and preferably to the correct individual in the company from whom you wish to collect. This person is probably not the individual or department you initially had contact with, so you will need to research the situation (see “Reach Out and Touch Someone,” later in this chapter).

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Check Your Attitude at the Door

Your mental attitude is key to winning at collections both monetarily and emotionally: Try not to get discouraged or irritated. Your loss of temper or failure to control your emotions can creep into your letters and other communiqués and affect their quality.

If you are harsh, sarcastic, or whiny, you’ll actually hinder your collection campaign. If your loan was to a friend or relative, you could irrevocably damage the quality of the relationship, even if he owes you the money and is the one holding up payment. Conversely, firmness and confidence bolster one another. Your quest is to apply pressure at distinct intervals in different degrees to vanquish the slow payer’s resistance.

With Software to Guide You

“Debt collection” software is available today to assist you in your collection efforts. Many programs offer several copies of collection letters that you can readily adapt and send. If you model your letters after them, you can cut down on any chance of letting your emotions find their way into your letters. Some programs allow you to choose the order of letters and documents that you want to send, and then preselect what days they will be sent on. To see the latest programs that are available, visit a store like Walden Software or Egghead Software, or flip through the ads in Entrepreneur, Inc. or Nation’s Business magazine.

Do not, however, necessarily proceed in your collection efforts at regular intervals. Many debtors understand such progressions and use the knowledge to delay payment for as long as possible. Thus, feel free to alter the strength and timing of your appeals.

Be Specific and Creative

To issue an effective polite reminder (that is, a collection letter) you need to do something other than merely copy the original invoice with “Payment Overdue” stamped on it. Instead, include specific information about the agreement, order, or contract for which payment is due, including:

• A description of the goods or services involved
  
• Details regarding the completion date and first invoice
  
• Details regarding any related written or oral agreements
  
• A self-addressed, stamped reply envelope

Use different letters, envelopes, sizes, shapes, colors, and so forth to keep the debtor off-balance. Many champion bill collectors have found it useful to add a personal, narrative letter with the collection letter. The personal letter appeals to the customer’s sense of fair play, reputation, or self-interest. Such narratives may require your increasing assertiveness as overdue accounts linger on.

Use language that appeals to the other party’s sense of fairness and justice. For example:

Sometimes it’s helpful to know why a payment is being withheld. If so, try to get the debtor to at least explain the delay by writing something back to you. This puts him into a person-to-person situation. You can also try using registered mail with a return receipt requested. The chances are that the debtor will read such a letter personally and perhaps make a response.

On a personal loan, you can bypass most of this stuff and simply call or ask about payment when you’re face to face.

Personalized Collection Letters

Now, using these recommendations and insights, craft a friendly but specific and guilt-inducing letter that gets the other party right in the old conscience (assuming they have one!). For example:

In addition to this letter, here is a wonderful catch-all phrase you can use if you suspect that the other party is on the verge of paying:

Turn Up the Dial

If your letters are ignored, you may wish to turn up the dial on persuasive language. Here are some key phrases that I’ve used that can be marvelously effective:

Reach Out and Touch Someone

Phone calls can certainly also serve as polite reminders. You can use all of the language presented previously, adapted to how you speak and interact as part of the script during your call. Sometimes the mere act of calling and asserting yourself is all that’s necessary. If you’re dealing with a company, be aware that the larger the company, the more likely you’ll have to make a number of calls before you find anyone who even knows about the account. Often that individual isn’t likely to have the authority to actually pay the account.

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 Handle with Care
Be warned. The person with whom you speak may be well schooled in the “check is in the mail” run-around. His or her easiest tactic may be to agree, apologize profusely, get you off the phone, and ultimately, do nothing. Then, you wait for payment and start all over again, with more calls and letters.

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You can use your fax machine to collect, if you keep your faxes very polite. If you know that the fax on the receiving end is in a public location, carefully consider whether using a fax reminder is appropriate for the situation, client, and sum in question.

If you have the correct person’s e-mail address, a polite e-mail message could be the magic elixir.

Aggressive Strategies

When people owe you money and time is passing, say it’s been three months or more, you may need to resort to aggressive collection strategies. These can be expensive, involving collection agencies and/or lawyers, and they often mean losing customers or clients who feel you are being difficult and heavy-handed. Some debtors, however, will only pay if forced to do so.

It’s your money, and if you’ve got a customer who’s swat-team material, it’s pointless to beat around the bush any further. If you lose a client who doesn’t pay, you’re no worse off in many respects.

Pay, or Pay the Consequences

If you have reached a point where the debtor is totally uncooperative, tell them that you will be forced to bring in a third party to resolve the matter. At all times, avoid libelous statements in whatever you write. Without getting into heavy legal stuff, a libelous letter that passes through the hands of a secretary or clerk is considered “published” and can leave you (the letter writer) open to suit for damages for liability even if the statements are true. Also, don’t write or put anything on the outside of the envelope that impugns the character or conduct of another, or that indicates it’s a collection letter.

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 Word Power
When what you write about another person is harmful or untrue, or intends to harm or malign them, your letter is said to be libelous and the other party can take legal action against you!

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For example, these statements could be considered libelous:

The following statements, however, are not liable, merely factual:

You can threaten a civil suit, but don’t threaten to invoke any law that may call for criminal prosecution, because non-payment of an account on credit is rarely, if ever, considered a criminal act.

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 Handle with Care
The older an account becomes, the more difficult it is to collect. Thus, use collection agencies quickly when circumstances warrant. As a general rule, however, don’t use a collection agency unless you’ve exhausted all other means and you’re prepared to sever business relations.

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Weget Yourmoney Incorporated

In deciding whether or not to retain a collection agency, there are two factors to consider right off the bat:

1. Using an agency can take up a great deal of your time. You’ll have to fill out forms, document your case, and spend more time on the phone with the agency.
   
2. If you’re assertive, a collection agency may not be any more effective than you could be.

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 Handle with Care
Avoid turning over dozens of slow-paying accounts to a collection agency right away—you need to get a feel for how the agency operates and how effective it is.

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As in any industry or profession, there are many mediocre and poor collection agencies. Ask for referrals from others in business, your banker, accountant, or attorney. Also ask Small Business Administration Officials or your local Chamber of Commerce.

Ask collection agencies themselves for letters from satisfied clients or, barring that, names and phone numbers of satisfied clients. Then call the clients. If you’re satisfied with the referrals, turn one or two accounts over to the agency. If you’re pleased with the results, try more.

These days, many accountants and attorneys will undertake collection efforts for you, and some banks will assist you by writing a letter to the offending party on behalf of your business.

Whomever you may use, check out the company’s policies and operations. Using a collection agency doesn’t mean you can forget about the account and go back to work. After all, just like your overdue customers, they have to set priorities, and your collection may not be at the top of their list. You’ll also want to track your collection agency’s success rate. If you feel that they are not working hard enough, you may be better off on your own.

Weesue and Associates

When somebody has really owed you a lot of money for a long time, it’s tempting to go too far in terms of threats and harassment. Watch out—the cost of collecting can exceed the payment due!

Here are some typical ways you can get into trouble that might end up being more costly than the money owed to you:

• Bringing suits for reasons other than collecting.
  
• Using overly aggressive collectors. Collectors who overstep their bounds leave the creditor wide open to legal action.
  
• Invading the debtor’s right of privacy in attempting to get payment (such as showing up with a bullhorn outside the non-payer’s house).
  
• Using threats that may be interpreted as extortion or blackmail.

As you escalate your attempts to collect, you may need to hire a lawyer to advise you of how far you can go and to keep you from overstepping the law. If you choose not to use an attorney, but want to stay on relatively safe ground, once again software can help. One program includes more than two dozen “legally sound” court documents you can use to speed up any legal claims you may wish to make. In any case, you need to avoid being sued yourself!