Collection Follow-Up

Whether or not your business chooses or use cash discounts or delinquency charges, a systematic follow-up procedure should be employed with all past-due accounts. Usually, this will take the form of a series of letters or telephone calls or both, as required.

First Collection Letter

When an account becomes approximately 15 days past due, the customer should be sent the first collection letter. Since the account cannot be considered seriously delinquent at this time, the tone of the letter should be moderate. Later letters should establish a firmer tone so that the customer is made aware of the seriousness of the situation.

The 15-day past-due letter should read about as follows:

Dear Mr. Adams:

According to our records, your current balance due is $473.25. Of this amount, $215.38 is more than 30 days past due. As you know, our normal terms require payment within 30 days after the invoice is sent to you.

Since you have established an excellent credit rating with us in the past, we are surprised to see a problem arise at this time. If there is some error, or you are unable to pay the amount due immediately, please con­tact me so that we can correct the situation or make suitable arrangements for prompt payment of this ob­ligation.

Thank you for your attention to this request.

 Very truly yours,

 Jim Madison

Second Collection Letter

A second letter, 30 days later, might read as follows, if  no response has been received from the customer:

Dear Mr. Adams:

We have not received any response from our statements of the last two months nor to our letter of September 15. Your entire account is now 45 days overdue, and you owe us a total of $473.25.

If there is some reason why this payment cannot be made immediately, please contact us so that we can make arrangements that will be mutually agreeable. Perhaps we can work out a payment schedule that would be realistic for your present circumstances.

Naturally, we do not want to endanger your credit rating or destroy the good relationship that we have maintained in the past. Therefore, would you please take care of this obligation immediately so that we will not have to file an unfavorable report with the credit bureau or resort to the use of a collection agency or an attorney.

We have enclosed a self-addressed envelope for your convenience. Please return it as soon as possible with your check for the balance owed.

Very truly yours,

Jim Madison

Third Collection Letter

If this is unsuccessful, a stronger letter should be sent in 30 days:

Dear Mr. Adams:

We still have no response from our statements of the past three months nor from the letters that we sent you on September 15 and October 15.

Your entire account is now seriously past due: It is obvious that our efforts to clear the account on a mutually agreeable basis have had no impact. Unless we receive payment from you within seven days, or can work out a mutually agreeable arrangement to discharge this obligation, we will have to report the matter to the retail credit bureau.

Subsequently, the account will be turned over to a collection agency or to our attorneys for further action. Since this is a costly procedure for both of us, and will cause serious damage to your credit rating, I would suggest that you call immediately so that we can clear the matter at once without resort­ing to such procedures.

Very truly yours,

Jim Madison

As you noticed, the tone of each letter became progressively stronger with suggestions of more serious action introduced in each case. The tone that you would want to establish in such "dunning letters" will often depend upon the type of relationship that you maintain with your customers. However, the ground rules should be clear. Past-due accounts should not be ignored.

Telephone

Frequently, an even more persuasive approach is through use of the telephone. The ground rules are basically the same. You must become progressively firmer with each call and indicate that stronger measures will be used if necessary to ensure prompt payment.

The telephone has the added advantage of flexibility since you can be more direct with better knowledge of the individual account.

You acquire this knowledge through asking questions such as the following:

"What seems to be the problem? We never had difficulty with your account in the past."

"How much would be a reasonable amount for you to pay each month? Perhaps $50, $60?"

"How soon can we expect payment of this amount?"

Try to avoid questions that can be answered "yes" or "no." If the creditor gives you an answer such as, "I'll mail it today," answer with: "I appreciate that. Then I can expect it in two or three days. If I don't have it by then, I'll call you back."

Be sure that the creditor realizes that you are totally aware of the situation and that you do not intend to ignore it.

External Collection Resources

If your own collection efforts fail, there are two courses of action that are left to you - the collection agencies and the courts.

Collection Agencies

Collection agencies are businesses established to collect past-due accounts receivable on behalf of creditors. The primary advantage that collection agencies offer is their superior knowledge of persuasive collection techniques. Additionally, creditors are usually anxious to clear in­voices referred to collection agencies rather than further damage their credit ratings.

The collection agency's fee is usually based upon a percentage of each account collected. The percentage ranges from 25% to 50% depending upon the size of the account or the total dollar volume of accounts referred to the agency for col­lection. This approach, while often effective, can be expensive.

A business is committed to paying the agency's fee on any account referred for collection, whether payment is made to the agency or to the business. Although some creditors may resent making payment to a collection agency and prefer to pay the company directly, the company is still committed to pay the fee when the account is collected.

Evaluate your financial plan occasionally with actual operations statistics. With effective records you can do this. Then, where
discrepancies show up it is possible to take corrective actions before it's too late. The proper choices for the right corrective
action will depend upon your own understanding of management techniques in purchasing, pricing, selling, selecting and training
staff, and handling other management problems.

You probably are thinking you are able to employ a bookkeeper or a Accountant to handle the record keeping for you. Yes, you can.
But remember two very important details:

1. Provide the accountant with true input. If you buy something And also don't record the amount in your business checkbook, the
accountant can't enter it. Should you sell something for cash and do not record it, then the accountant won't understand about it.
The records the accountant prepares will probably be no greater than the information you provide.

2. Use the records to make conclusions. If you went to a physician And he told you you were sick and needed certain medicine to
get well, you'd follow his guidance. If you pay an accountant and he informs you that your sales are down this season, do not hide
your head in the sand and pretend the problem will go away. It won't.

Business Management Roll in Personnel Selection. If your Small Business Will be large enough to require outside help, an important
responsibility will be the choice and training of one or more employees. You may begin with relatives or business partners that
will assist you. But if the company grows - as you hope it will - the time will come when you have to select and train personnel.

Careful choice of personnel is essential. To Pick the right Employees decide beforehand what you want each one to perform.

Then search for applicants to fill these particular needs. In a small Business you will need flexible employees who can shift from
task to task as required. Include this in the description of those jobs you would like to fill. At precisely the same time, look
ahead and organize your hiring to guarantee an organization of individuals capable of performing every crucial role. In a retail
store, a salesperson might likewise do stock-keeping or accounting at the outset, but as the company grows you'll need sales
people, stock-keepers and bookkeepers.

When the project descriptions are composed, line up applicants whom To make a choice. Do not be swayed by customers who may
suggest relatives. If the candidate does not succeed, you may lose a customer in addition to a worker. Some sources of possible
new employees are:

1. Tips by friends, business acquaintances. 2. Employment agencies. 3. Placement bureaus of high schools, business schools, and
schools. 4. Trade and industrial institutions. 5. Help-wanted advertisements in neighborhood papers.

Your next task is to display want ad responses and/or application Forms delivered by employment agencies. Some applicants will be
removed sight unseen. For each of the others, the application form or letter will act as a foundation for the interview which
should be conducted privately. Put the applicant at ease by describing your business generally and the job particularly. Once you
have done this, encourage the applicant to speak. Picking the proper person is very important. Consult your questions carefully to
learn everything about the applicant that's pertinent to the job.

References are crucial, and should be checked before making a final decision. Check through a personal visit or a telephone call
directly to the applicant's immediate former manager, if at all possible. Confirm that the information given you is accurate.
Consider, with judgment, any negative comments you hear and what isn't said.

Checking references may bring to light significant Details Which may save you money and potential inconvenience.

Personnel Training. A well-selected employee is only a potential Asset to your business. Whether or not he or she becomes a real
asset depends upon your own training. Recall:

To allow sufficient time for training. Not to anticipate too much from The trainee in too brief a time. To allow the worker learn
by performing under real working conditions, together with close oversight. To follow up on your training.

Check the employee's operation after he or she was at work For a time. Re-explain key points and short cuts; bring the employee
current on new developments and encourage inquiries. Training is a continuous process which becomes excruciating oversight.

Personnel Supervision. Supervision is the third essential of personnel control. Good supervision will lessen the cost of operating
your business by cutting down on the amount of employee mistakes. If mistakes are corrected early, employees will get more
satisfaction out of their tasks and perform better.

Motivating Employees. Small businesses sometimes face special Problems in motivating employees. In a large business, a Fantastic
employee can see An opportunity to progress into management. In a small business, you are the management. 1 thing you may wish to
Think about is to give great employees a Small share of the proceeds, either via part-ownership or even a profit-sharing plan.
Somebody Who has a"share of the action" is going to be more Concerned about helping to make a success of the business enterprise.

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