You decided to invest in loss recovery. How do you make the best of it?
The first step is making sure you handle debt correctly even before sending them to a 3rd party. Here are several things to think about and do.
How long should you wait?
Some customers “self-heal”, meaning pay without being pursued. Those who do pay within 30 days of the due date. Track and validate that you’re letting the right amount of time pass. Sending customers to collections too late reduces recovery effectiveness – especially if these customers owe money to more than just your company. You need to be top of mind for them to make sure you get paid, and the earlier you start the better.
Why did the customer default?
Form an opinion on why the customer defaulted. The reason for default is important so you can both invest your efforts and guide your collection company.
Does this seem like a fraudulent transaction or a case of identity theft? Expect to not recover anything; sending this debt to collections won’t help. Conversely, is this a well known customer who suddenly isn’t paying? They should get an extremely careful treatment, both internally and from your collections partner.
TrueAccord uses a debtor classification engine that assigns likely default reasons to different debtors, so even if you can’t form your own opinion, you can rely on us.
Give ample notice and time
Start with giving your customer a few days’ grace period. They might just be a bit late to handle bills or delayed due to a temporary issue. 3-7 business days are the standard. The grace period and follow up reminders have two goals: first, improve your internal recovery rate. Second, start the escalation process leading to 3rd party collections.
Once the grace period has passed, send a reminder. Use your standard mode of communication with the customer (email, text, letter) to do so. If the amount is large enough, follow up with a phone call 3-5 days later. Present the balance owed and make a clear demand for settlement. TrueAccord rigorously tests and optimizes demand notice sending times and content, and gets great results with only emails. You, however, only have one or two shots and should reinforce the message with a follow up. Repeat this step 1-3 times until the “self-heal” period ends.
Some customers will deflect with general excuses or vague promises for future payments. Be firm with both types of evasive behavior: remind the customer of the contract they signed, and demand full payment by a set date. Don’t let this drag on and don’t be dragged into negotiations. These are the realm of experienced negotiators, like the ones we employ in our operations team.
Pre-placement and placement notices
Once the self-heal period ends, start the escalation process. It starts with a pre-placement notice, a last effort to get your customer’s attention by signaling how far you’re willing to go to get paid. State that you were unable to get paid by them, and that their lack of communication leaves you no other choice than sending them to collections. State a time frame after which you’ll send them to collections; 7 days is a common number. Several of our customers recover a large percentage of their unpaid debts at this point, since no one likes being sent to collections.
Once 7 days have passed, send your customer a placement notice. Staying professional through the process is important for recovering your loss and the customer’s long term business. Don’t be vindictive, simply state that they are now placed in collections, and let them know who the collection company is. Some of the most effective collection notices explain that the matter is now out of our customer’s hands. From that point and on, you should let your collection partner handle the process for you.
Sending customers to collections should be a well designed experience. You will recover money and lost relationships, starting with implementing a structured process for escalating communication with defaulted customers. TrueAccord’s escalated interaction process allows you to seamlessly move from internal follow up to external collections, quickly improving your recovery.