Some customers just won’t pay you, or charge a payment back once a service was provided. It is a normal business phenomenon, for some companies and sectors more than others. Some of the companies we’ve worked with have seen 3% and more of their revenue eaten up by losses. Not knowing why, most forget about losses and try to view them as the cost of doing business, while focusing on detection and prevention of loss-causing customers before those are caused.
The end result? Hundreds of thousands, sometimes millions of lost dollars left unclaimed, and a business that could have grown much quicker that ends up focusing on limiting its ability to sell in fear of defaulting customers instead of selling more. To a small business, this can be a death blow.
There’s a better way to approach this unfortunate situation. Proactive Loss Management is more than simply managing accounts receivables; it’s a process that combines several activities to follow up and understand and resolve losses and their causes in a systematic way. When implementing these activities, some of our customers saw immediate upside, up to 10% of recovery within a few weeks. Imagine cutting down losses by 10% with a simple process; how much more can you sell in a month?
Some of our customers found that they are not only able to take more risks, but that customers who went through this process and recovered created top line growth that was bigger than the recovered amount, up to 10% increase in revenues. How can that be done?
Proactive Loss Management is comprised of several activities:
Root cause analysis
The first question to ask about any defaulting customer is “why?”. Why aren’t they paying? You’ll discover that customers have many different reasons and that those reasons will inform your operational processes and make you more efficient and improve your product (need more reasons to talk to your defaulted customers? Read here).
You may discover that your invoices have a distorted layout, or that your descriptor on the credit card’s billing statement is wrong and prompts chargebacks, or that the your legal contract is ambiguous. Any of these creates losses that are a result of a misunderstanding, more than malicious intent. All are also fixable and can make a huge difference in payments in a short time. Furthermore, not only will you solve existing customers’ issues, you’ll be able to prevent them from repeating for future customers, compounding this positive effect.
As losses mature you’ll run across more customers with unique reasons for non-payment. Much like optimizing front end conversion, personalizing the Loss Management experience is important and reaches both better results and greater customer satisfaction. Segment your customers based on their personal details and financial situation, both those that you had before they defaulted and what you learn based on their responses after they have. The more accurate you are about addressing a customer’s pain, the more likely they are to respond to you and be willing to work with you on a solution; try to force them into a one-size-fits-all solution, and you’ll easily lose them and any recovery opportunity.
Forgetting to pay is easy. Even if you’ve reached an agreement with a customer, staying top of mind so they’ll pay when they need to is important. Whether they are in a grace period or losses have already materialized, you need to be friendly but firm and demand the payment you are owed.
Multiple-channel escalating follow up is best for getting customers to respond and tell you why they’re not paying, or pay when they need to. Constantly optimizing on the content and design of your communication will help you get more responses faster.
Proactive Loss Management is focused on retention. By thinking about losses as lost relationships rather than just a sum of money that needs to be recovered, merchants enjoy better customer retention. We’ve seen customer lifetime value grow significantly with customers going through Proactive Loss Management since, counterintuitively, going through a default that’s managed the right way increases brand trust and loyalty.
It’s easy to forget about dealing with receivables. It’s an unpleasant job, definitely not the delightful part of your product and offering. Still, it’s an important one – for the money you’re losing, for the relationships you can recover, and for the insights it can generate. Start today and you may see benefit in just a few weeks!