HOW TO IMPROVE COLLECTIONS
by
Charles Warner
As fundamental as it may sound, it never hurts to remind
companies that the best way to improve their receivables is not
to sell advertising to customers who cannot or do not pay their
bills. This philosophy must be instilled in salespeople from
their first day on the job. A company's credit policy must be
explained to salespeople thoroughly. Then, the credit policy must
be enforced evenhandedly and absolutely consistently. Too often
credit policies are disregarded when pressure is put on by
management to bring in business. When things get a little tight,
a sales manager will typically ask the business manager to take
more risks on approving credit; if the business manager agrees,
credit policy integrity goes out the window for good.
One of the best ways to insure that the sales department is
selling to creditworthy clients is to teach them how to qualify
properly. Part of the qualifying process is to qualify a
prospect's ability to pay for advertising. The business manager
must check the credit of every new account. Many types of
accounts (political, concert promotions, and bars, e.g.) and
brand new accounts that have no credit history should be asked to
pre-pay a schedule (a better term than cash-in-advance) in order
to establish credit.
Remember, the overall goal of any business is to create a
customer, a customer who will have a long-term relationship with
a company. Often too much pressure is put on salespeople for just
getting an order and for securing any type of short-term
business, which usually results in taking too much marginal
business.
Another way to improve on receivables is not to have a
compensation system that encourages short-term thinking and
credit risk taking among salespeople. A straight-commission type
of compensation system that pays on billing and has no charge-
back mechanism for business that is uncollected after 120 days
encourages selling to credit risks. Most experts agree that it is
best to pay salespeople based on billings rather than on
collections, as long as there is a strong credit policy in place
that includes charge-backs and if salespeople are involved in the
collection process.
Also, accounting systems must be well organized and be able
to provide management with accurate aging lists. Sales management
and salespeople must be able to see a percentage of all business
that is 30, 60, 90, and 120 days past due. Once a good aging list
is in place, it is imperative that a station's business
department have a complete, well-organized follow-up system, and
that the business department implements this follow-up system
religiously in consultation with salespeople. Too many business
departments have the information on aging accounts, but do not
follow up consistently or follow up without talking to a
salesperson. Make sure that a business department has the proper
systems and adequate clerical help to follow up properly.
The business manager should have the primary responsibility
for collecting, not salespeople, although salespeople must be
consulted and involved. The biggest single factor in improving
receivables is to have a well-organized, dedicated business
manager. Without a business manager that takes personal
responsibility for improving receivables, collections are not apt
to improve no matter what else is done. A nice, civil business
manager that cares about the company's customers should do the
collecting, not low-paid clerks who often hate customers and
treat them accordingly.
If a bill has not been paid within thirty days, the business
department should check with salespeople and ask them to contact
their accounts and see if there are any reasons for non-payment--
any scheduling or billing problems. The salespeople should not
ask for payment during this initial inquiry. Salespeople must be
facilitators--help their customers get on sound payment plans.
The business department should automatically send out to
every account that is 60 days past due a letter inquiring if
there is a problem with the bill; and if so to call, and if not
to please pay. Next, another letter should be sent out automatically
after 90 days. The 90-day letter should be a little longer
than the previous one, and mention the possibility of schedules
being taken off the air. Close coordination with the salespeople
is essential at this stage. After 120 days, a tough letter should
be sent telling clients that they are being taken off the air (if
they are still on the air) and that their account will be turned
over to a lawyer next month if not paid right away.
If after 150 or 180 days there has been no payment of any
kind, turn the account over to a lawyer or to a collection agent.
Shop around for a reputable, effective collector. Collection
agents that are too pushy are bad for your reputation. Make sure
that you check out the collectors' tactics and see samples of the
types of letters they send out.
After 90, or at most 120, days of being past due, the
business department and salespeople should work hard with
customers to try to get them on some kind of payment schedule.
For example, if a customer is 90 days past due and still wants to
run a schedule, ask the customer to pay for each schedule on a
weekly basis and pay an additional 10% or 15% additional to clear
up part of the past due. Negotiate with customers to get them on
some kind of steady weekly or monthly repayment schedule, no
matter how small.
Make sure that a collection system has provisions in it for
the business department to inform the sales department before it
sends out the letters, and for the sales department and business
department to work closely together throughout the collection
process. Close communication between the two departments can save
a lot of ruffled feelings. Notice the use of the word "inform."
The business department should not have to get the permission of
the sales department, because salespeople are apt, as clients
are, to say something like, "Hey, don't bug them; they're good
for it," or the world's number-one excuse, "the check's in the
mail." If you automatically, relentlessly send out letters, your
collection percentages will improve. Remember another adage, "The
squeaky wheel gets the grease." It works in collecting.
Have the business department check their standard dunning
form letters with the sales department when they first create
them, and let the two departments negotiate over the content and
tone of the dunning letters. The business department will want to
be too nasty and pushy, and the sales department will typically
want to be too easy and wimpy. The result of the negotiation will
probably be a decent letter that is civil, businesslike, and
firm.
Another effective way to improve your collections is to use
the carrot-and-stick approach and offer a 2% discount if payment
is received within the same month the bill is sent out. If your
company adopts this approach, make sure the salespeople know
about it and sell it hard to their clients, especially to
agencies. Tell agencies they can make an additional 2% commission
on all of their accounts by keeping current on their payments to
you. Have a stamp made and put a line in fairly large letters on
the bottom of contracts publicizing the discount. Also, put
information about the discount on other promotion material such
as rate cards (if you publish a rate card) and station presentations.
The 2% discount can be another differential competitive
advantage for your organization. Offer an even larger discount
for pre-paid schedules from customers with good credit.
When a new advertiser gets the first bill from your company,
it is a good idea to have a form letter that accompanies the
initial bill spelling out your collection policy. Tell advertisers
that payment is due in 30 days, what your 30-day discount
is, that you take accounts off after 120 days, and that you turn
unpaid accounts over to a collector in 150 or 180 days without
fail, for example. In this manner, clients are informed; they
know you are serious and businesslike in your approach, and they
have been informed about your collection policies.
Some media companies have adopted late payment charges,
usually in the form of a 1.5% interest charge on unpaid balances.
In general, late charges have not been effective, and where they
have been it is in situations where the medium using them has a
virtual media monopoly and customers have no alternatives. Late
charges tend to antagonize advertisers and, in many cases, impede
cash flow. A late charge can actually hurt because some
advertisers treat their account like a revolving charge account,
such as Visa or Master Charge, and make only small, partial
payments. Many advertisers run up huge balances by paying just a
minimum amount and get in over their heads.
Another problem with late charges is that they are often not
uniformly applied. Many advertisers ignore them, and once they do
and are not called on it, they will never pay them. If you use
late fees, they must be applied strictly and uniformly to be
effective. Furthermore, if you use late fees, you must publicize
the fact on all rate cards, contracts, and other promotion
material because late fees are legally considered to be interest,
which means that state interest disclosure and usury laws apply.
If you use a late charge, check with your lawyer.
The National Association of Broadcasters (1771 N Street
N.W., Washington, D.C., 20036) has a booklet on credit and
collection policies that has several examples of dunning letters
in it. Also, the Broadcast and Cable Financial Management
Association (701 Lee Street, Des Plaines, IL 60016) has
information on setting up and administering credit systems and
policies.
Finally, if a station wants its customers to pay on time,
the station must pay its bills on time. It is virtually
impossible to collect from someone who says, "I'll pay you when
you pay me and my friend down the street to whom you are 90 days
past due." Forget it. The Golden Rule is nowhere more applicable
than in collection practices.
Back to the Index of Papers
| 
