Completion of the Sale or Debt Collection

maart 13th, 2015 · by John · Weblog EN

To many people, the term debtor carries a negative connotation like that of someone being guilty of a trespass or sin. Under ancient Athenian law debtors could pledge themselves as collateral for a loan. If they failed to pay, they would become the creditor’s slave. During the middle ages, debtors were locked up until their debt was paid. Conditions included starvation and abuse from other prisoners. Some debt prisoners were released from prison to become indentured servants.

Debt collection is the process to ensure that clients pay amounts, which they have not paid on time or even refuse to pay. Calling past due management debt collection however, given the aforementioned negative connotation, can hinder the resolution of the situation and endanger customer relations, future sales, customer retention, as well as harm the seller’s business reputation. The majority of past due customers are not trying to avoid payment; they have valid reasons why they have not paid yet.

Some customers pay late because they choose to practice cash management. These are often big companies who use their vendors as short term financers, and they will not pay any late fees. Other, companies and government agencies are slow payers because they are not well organized and can’t locate the invoice, or they are just plain lazy about taking care of accounts payable.

Other clients have not paid because something went wrong somewhere. One can think of sales or service disputes, shortages or overages, late delivery, lost paperwork, missing information, unauthorized purchases, returns, unissued or misapplied credits, damage, sales guys offering extended terms and failing to tell anyone in Credit, flood, famine, fire, oil spills and earthquakes. Underlying causes can be on the part of the customer, the seller or even come from an outside source. Murphy was an optimist.

Sometimes customers might be willing, but are not able to pay: they simply don’t have the money. This inability is short term and has an understandable explanation: they bill their customers at the end of the month, they have had an unexpected loss or expense, or their business may be of a seasonal nature. Most of these customers can, more or less accurately say when they will be able to pay. There can however, also be long term financial problems, for instance due to the divorce of principals in a small business, loss of a key person, new competition, a new product or service making the customer’s business obsolete. The latter customers represent a large risk of bankruptcy.

It is therefore important to determine why payment has not been made and resolving the matter so that customers pay and purchase again.

Nevertheless, in a limited number of cases debt collections will be needed. Depending on the quality of your credit approval process, a small percentage of customers will try to avoid payment. They are out to beat sellers out of what they owe. They will be un-cooperative and they will lie, break promises or even skip out altogether. Then it’s time for debt collection. Pity you can’t enslave them anymore……

John Greijmans

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