Time to Make Enquiries

So. You've dropped a chatty e-mail to a 'friend' or two and attached a Statement, written a reminder letter and posted it (and perhaps e-mailed it, too), and made a telephone call, but you still haven't been paid. What now?

Time was, you could have written one or three more e-mails, sent out one or three more reminders, and made a whole series of chasing telephone calls and still have been pretty sure that, in most cases, the cheque would turn up one day or another, better late than never. But this isn't time was and, post 2008, you can't afford to behave as though you are still living in time was.

Debtors fall into three categories:

1. Will pays
2. Always late pays
3. Won't pays, and
4. Can't pays

When 'will pays' and 'always late pays' suddenly don't pay according to their usual pattern, and your collection efforts meet with no response, the question arises as to whether these category 1 and 2 customers have dropped into category 4.

Moreover, it's worth considering whether any of the category 3 'won't pay' customers are using complaints to disguise 'can't pay' situations.

The only way to answer those questions is make some background enquiries. Getting a Credit Report from a credit reference agency, and making searches of The Register of Judgments, Orders and Fines, The Individual Insolvency Register and any one or more of the many available debtor registers will enable you to find out more about your customer's real situation, and make a decision as to how to proceed.

Don't Talk, Listen!

A couple of days ago I wrote a list of the Do's and Dont's of telephone collection. Listening was on the list - and I capitalised the word 'LISTEN' to emphasise its importance. I now want to emphasise it again, because I sometimes think that people don't really understand how to listen or what listening really is.

Listening isn't a passive activity. It isn't waiting for your turn to speak, and isn't just about hearing what other people say either.

When people talk, they always reveal more than they intend to - how they're feeling, what they're afraid of, and what they want from you. In other words, genuinely listening doesn't just involve hearing someone else's words and responding to them; it means registering what people are not saying directly, or what they might be reluctant to say, or what they don't want you to do or say in response to what they are saying, and either filing that information away for future reference, or responding to that 'sub-text' immediately and directly.

People who have a complaint need no encouragement to talk about it - the problem there is the time it's going to take them to run out of steam and give you a chance to respond appropriately - but people who have no complaint to make but have good reasons to be evasive (and you may meet plenty of those!) often do need encouragement to come up with sentences that include more than three words and all too frequently consist of just one.

It isn't difficult to encourage people who are reluctant to talk to begin to talk, simply because many - in fact most - people find silence uncomfortable, and can't wait to fill it. Consequently, if you resist the urge to talk yourself, remain responsively silent, and listen not just to the spoken words but to the underlying sub-text of the ensuing conversation, you will learn a great deal more from the person you are speaking to than he or she will ever be consciously aware of.

Quite a while ago now I remarked that the telephone can make it difficult to judge someone's real attitude or reaction to your collection call - and that's true. But by using the power of silence to encourage people to talk to you and listening - really listening - to what they say, either outright or indirectly, you can make quite accurate judgement calls as to the real state of play where your defaulting debtors are concerned.

And don't forget: if you talk too much, and listen too little you, too, may reveal more than you intend to...

Make a Record of Your Collection Calls - and Follow Up

Unless someone is tapping your telephone - which I think is very unlikely - there will never be any cast iron record of your collection calls. There should, though, be a record, made by you.

Unless you take shorthand, your record will be at best a bullet-pointed list, and at worst a scribble that will rapidly become an indecipherable scribble unless you transcribe it straightaway. In either event, it's best to transcribe your notes of your telephone conversations as soon as you can whilst your memory is still good enough to fill in the blanks.

It's important to make notes of your conversations with your debtors because:

• Your notes become the basis of follow-up conversations - about arrangements made, or promises broken.
• They allow you to decide what you ought to do next, and how urgent it is that you do it - i.e. is the situation getting better (arrangements made and complied with) or worse (a series of excuses and/or broken promises)?
• They are 'evidential' in the event that you decide to issue a Claim. If, for example, your debtor makes a series of promises to pay, but never complains about the goods or services supplied, then it would be very difficult for that debtor to formulate a Defence based on a complaint - or, indeed (having admitted the debt and promised to pay it!) any Defence at all.

It's also important to set out in writing - by e-mail or letter - your understanding of what the debtor has said or promised, and what you have said or agreed to. Your e-mail or letter will, of course, also be evidential if the worst comes to the worst, but there is another important factor to consider here - 'cherry picking'.

We all 'cherry pick' - make assumptions, and hear what we want to hear. By setting out your understanding of your conversations in writing, you can ensure that your understanding of your collection call is shared by your debtor and that there are no misunderstandings.

Collection is a Selling Exercise

Collection is actually a selling exercise, and many of the basic principles of salesmanship apply to debt collection also. One of the most important of those principles is: People buy people first, and goods or services afterwards.

Effectively, you need to sell the idea that paying your account would be beneficial all round to your late-paying or defaulting customers - but first of all you need to sell yourself.

So far as telephone collection calls are concerned that means using your voice, because in those circumstances your voice is the only means of expression available to you.

'Vocal style' is the way you use your voice to portray what you mean, think, and feel - and because voices can reveal a lot about your attitude, your customer's attitude, and how you feel about each other, you at least need to develop a good 'vocal style'.

Good vocal style can be summed up by the (actually very appropriate!) pneumonic 'PITCHES':

Pitch - Low is best. Remember: your contact can't see you, and knows (as we all do!) that people's voices tend to rise when they feel angry or aggressive. Avoid shrill, rapid, or loud delivery.

Inflection - Is the opposite of monotone! To sell yourself and your idea you need to engage and retain your customer's interest. You won't be able to do that if you sound depressed, off-hand or bored.

Tone - It's not what you say, it's the way that you say it. People respond well to pleasant, softly spoken, polite people; they are not too keen on brusque, abrupt, or sharp tones - and they tend to reply in kind when they hear them, which can the beginning of a bad experience for everyone, and the birth of a very negative impression of you.

Clarity - Speak clearly and slowly and don't use unusual words. Part of your collection call will necessarily be devoted to giving facts and figures and chapter and verse about your outstanding account. You must give your customer the time and opportunity to understand and absorb what you say and take notes.

Heartiness - People respond favourably to warmth and friendliness and agreement and expressions of interest in them, their concerns and their point of view. We've already gone through the potentially disastrous effects of being off-hand, brusque, abrupt or sharp. Add 'don't argue' to the list of no-no's. Selling your idea isn't about winning an argument; it's about coming to an agreement about the validity and beneficial effects of your idea.

Enunciation - Some letters can sound the same - 't' and 'd', or 'p' and 'b' for example. Poor enunciation can lead to misunderstandings. Try to enunciate clearly yourself, and if you are unsure as to anything your customer has said, ask that he or she repeat it.

Sensitivity - You have two ears and only one mouth. Good listeners make twice as many sales as good talkers. Obviously you need to talk - and talk persuasively - in order sell your idea and its benefits, but you'll find it easier to do that if you allow your customer to express his or her thoughts rather than trying to dominate the conversation all the time.

People may not 'buy' your idea for a number of reasons. It might be, for example, that your contact isn't sufficiently senior to buy it, or that your customer is literally unable to buy it. Those are reasons for failure to sell your idea that - obviously - can't be laid at your door. Other reasons can be your fault:

• Failure to establish common ground. Barriers to 'friendship' and customer resistance are lifted once common ground is established.
• Failure to prepare for the call sufficiently well to present enough facts to enable the customer to come to an intelligent decision.
• Insensitivity. Too much talking and too little listening equals high pressure sales tactics. People resent and resist high pressure sales tactics.

Basic Do's and Dont's

• Be warm and friendly
• Use a pleasant tone of voice
• Agree
• Ask questions
• Offer information and help
• Stay calm
• Don't argue
• Don't raise your voice
• Don't be sarcastic
• Don't get angry or upset
• LISTEN! Don't interrupt when your customer is talking
• Don't mirror your customer's bad behaviour e.g. repay rudeness or aggression in kind

Gathering Physical Evidence of Default

When you make your first telephone collection call to your debtor, you need to prepare for it.

Getting the physical evidence of default together is simple - or at least it ought to be!

It's important to gather together all the facts, review the history of the account, and make accurate notes before making your call.

You need to know exactly how much is owed, for what, and for how long, and be able to quote invoice numbers and delivery dates without having to riffle through a file of papers to find what you're looking for. If you have facts and figures at your finger ends you will sound more credible and more professional - which is a great start to making a good impression.

You also need to find out whether the debtor is in the habit of paying late - and whether precedents for late payment been set by previous arrangement, or simply by default. Once you have that historical record, you can decide how you are going to approach your debtor, what you are going to say, and how you are going to say it. You should make notes about that, too. There's nothing wrong with giving chapter and verse of default, or making it plain that arrangements made in respect of past contracts to do not apply to present contracts - but remember: it's not what you say, it's the way that you say it.

The Spoken Word Carries More Weight Than the Written Word - for Better or Worse

If people don't pay your invoices and don't answer your e-mails and letters then you've no alternative but to telephone them.

As a collection tool, the telephone has advantages and disadvantages - and some things can go either way depending on you and the way in which you approach your debtors on the telephone.

Benefits? Telephone calls are convenient and cost-effective, can enable you to learn about complaints or payment problems at an early stage and deal with them promptly - and they can give you the advantage of surprise.

Possible disadvantages? Telephone calls are more personal, but they are only one-dimensional in nature. Body language isn't visible, so it's difficult to judge someone's real attitude or reaction to your call. Your 'friend's' real voice may sound much colder and much more abrupt than the written 'virtual voice' that you are used to - and vice versa.

Definite downsides? Telephone calls leave an incomplete personal record or no personal record at all - and the telephone can amplify negative emotions like fear, anger, or aggression.

The spoken word carries more weight than the written word - for better or worse.

Thoughtless or insensitive use of the telephone can wreck much closer relationships than the business relationships we have been talking about here. A telephone call can leave a lasting impression. If you make an excellent impression on the telephone, you can maintain a certain degree of authority in your subsequent relationships. If you make a mistake, you can create a false and disastrously damaging impression of yourself and your Company - and it's going to be very difficult to backtrack on that.

Words once spoken can't be taken back. It's easy to use the telephone carelessly. I regularly do it in my private life and regularly regret and am forgiven for it, but in business one can't afford be careless - or expect forgiveness.

It's Not What You Say, It's the Way That You Say It

So far I've been talking about 'arms length' collection techniques - techniques that (a) give you time to think about what you intend to say, and how you are going to say it and (b) only demand 'shallow' interpersonal skills.

E-mails and letters can be drafted and crafted until you are satisfied with them; telephone calls, meetings and visits can't be controlled in that way, and demand much more sophisticated interpersonal skills - which means, of course, that they can be much more difficult to handle successfully.

One of the primary reasons that social networking techniques make it so easy to make 'friends' and influence people is that vital human elements are missing in the virtual world that are always present in the real world. You may, for example, find that some of the contacts you have made into 'virtual friends' don't look, react, or behave the way you imagined they would (or can be unbearably irritating!) when you speak to them on the telephone or meet them in the flesh - or that you instinctively dislike or mistrust them.

When you use 'up close and personal' collection techniques, it's sometimes necessary to disguise your reactions to other people (particularly if those reactions are very negative!) and - so far as telephone calls are concerned - remember that it's not what you say, it's the way that you say it.

To Claim or Not - A Commercial Decision

When I was talking about negotiation a few days ago, I pointed out that adding a clause claiming interest and statutory collection charges under the 2002 Regulations to your standard in-house collection letters would allow you to negotiate from a position of strength - to make concessions when necessary without losing very much (or any) of the outstanding principal balance.

The same tactic works well with persistent delinquents, too. Customers who consistently fail to pay to terms need a sharp reminder of your right to prompt settlement or interest and/or compensation in lieu of prompt settlement. You are not, after all, in the business of providing interest-free loans to any customer, however good or long-standing that customer may be, and even a 'one-off' decision to demand your rights can be a salutory wake-up call that could keep the customer on the straight and narrow for a while.

However, whilst reserving your right to claim interest and collection charges is always a good idea, insisting on getting them has to be a purely commercial decision based on a variety of factors.

You don't have to claim interest and/or compensation, either under the legislation or under your own Terms & Conditions if you don't want to, or feel that it might be commercially unwise. The Guidance Notes accompanying the 2002 Regulations state quite catagorically that antagonising customers and jeopardising customer relationships by use of the legislation should be avoided - and you should take that on board.

Whether or not to press for interest and compensation must be a purely commercial decision based on commercial realities. What I've been talking about here for the past few days is a fine, well-intentioned piece of legislation that - like the Supermarket Code of Conduct - was intended to redress the balance of power between large and small businesses and ensure fair trading practices. In reality it cannot do so, and therefore the legislation needs to be used 'selectively'. Enough said?

Keep Your Terms Up To Date

A set of Terms and Conditions, however good, doesn't last forever. Terms have a 'shelf life' the length of which is determined by external factors - changes in legislation. If, for your example, your Company's Terms & Conditions were never amended to take into account the 2002 Regulations then they are obviously very much out of date.

In the best regulated circles, Terms & Conditions are professionally audited on an annual basis to make sure that they comply with new legislation - and ensure that you can either benefit from that legislation, try to circumvent it, or try to lessen its impact.

This is not an area where you should try to cut down on expenses. In the long term, spending money to get a good set of Terms & Conditions and keeping them up to date is spending to save.

Don't Try to Save On the Cost of Circularising Customers

A lot of companies try to circumvent the time and postal expenses involved in circularising customers with new Terms & Conditions by endorsing them on invoices.

The belief that this alone is sufficient to incorporate the conditions into the contract is as widespread as it is misguided. Contracts are made long before invoices are rendered, and contract law makes it quite clear that agreement to accept Terms must be made prior to or at the time of making the contract and accepted by both parties.

Terms endorsed on the back of invoices are not enforceable, and cannot by any manner of means be made out to be so.

And it's in Your Own Interests...

Sale terms will be included in each contract and become effective only if they are included in the offer and accepted by the buyer. In other words your company must be able to prove that the customer had notice of the terms prior to, or at the time of, making the contract - and that both parties intended to include those terms in the contract.

Consequently, not only should all your company's new customers be made aware of your terms before trading commences, your entire customer base must be circularised with a fresh copy should your Terms & Conditions change for any reason.

Obviously, and to ensure that the intention to include your company's terms is the intention of both parties, Terms & Conditions should go out under cover of a letter requesting that customers 'signify acceptance by signing and returning the enclosed copy of this letter'.

Many customers inevitably fail to do this, and because it is difficult to prove that silence indicates consent, it is also advisable to add a sentence to the letter to cicumvent that obstacle: 'Should we not hear from you accordingly, your silence will be taken to indicate your consent to these Terms'. All envelopes, of course, should bear a return address, so that any undelivered mail can be returned to you via the dead letter service.

Interest On Your Own Terms

Obviously, and because creditors retain the right to claim more interest or compensation under their own Terms & Conditions that is available to them under the Late Payment of Commercial Debt Regulations, it can be more advantageous to rely on such Terms - but only if they have been prepared properly.

Terms & Conditions are lengthy, carefully worded documents written by qualified professionals for specific companies in order to comply with specific legislation, fit specific corporate circumstances, and cover every possible contingency. It is therefore very unwise indeed to try to write them yourself, crib those used by competitors, or any in way re-write, shorten or amend those that have been professionally written for you. Shortened, amended, stolen, or 'amateur' Terms and Conditions are amazingly commonplace. They are also indefensible and often unenforceable.

Make Your Intentions Clear

Despite the fact that the entitlement to claim interest under the Late Payment of Commercial Debt Regulations is an 'implied term' of any contract to which the Act applies, your Company's intention to use the legislation should be made quite clear on its invoices, collection letters, e-mails, and all other relevant documentation.

We will exercise our statutory right to claim interest and compensation for debt recovery costs in accordance with the Late Payment of Commercial Debts (Interest) Act incorporating the ED Directive 2000/35/EC would be an appropriate addition to all such documentation.

Interest and the Statutory Collection Fee

You have the right to claim interest and a statutory collection fee under the Late Payment of Commercial Debt Regulations, which came into force in August 2002 as an amendment to the Late Payment of Commercial Debts (Interest) Act 1998.

The Regulations enable UK businesses to claim statutory interest in respect of all contracts for the supply of goods or services entered into on or after the 7th of August 2002 where both parties to the contract are acting in the course of a business. The legislation included Hire Contracts, but not Consumer Credit Agreements, Mortgages, and pledges and charges where some other form of security is usually supplied.

Statutory interest is fixed by the Government twice in every hear. At present, the total statutory interest rate is 10 per cent simple interest. You can find a statutory interest calculator on-line at http://www.payontime.co.uk/calculator/statutory.html.

The Regulations also provide a right to claim compensation for your recovery costs - and that applies even if you are doing the recovery yourself. Compensation for recovery costs can be claimed once statutory interest begins to accrue, and is an additional sum:

• Up to £999.99 - £40.00
• More than £1,000, but less than £10,000 - £70.00
• £10,000 or more £100.00

The entitlement to claim interest is an implied term in any contract to which the Act applies: it can only be ousted or varied by express terms that provide a 'substantial remedy' for late payment. Consequently, all other late payment terms purporting to exclude the right to statutory interest in relation to the debt are void. However, creditors do retain the right to claim more interest or compensation under their own Terms & Conditions of Sale.

Negotiation

The basic principle of negotiation is very simple: you can only go down, never up.

The only time you have a chance of negotiating upwards is when your debtors tell you what they can afford - at which point you have a chance of being able to reach a more satisfactory outcome by negotiating up and reaching a compromise figure. When you begin negotiating for settlement at any other time, though, you should bear in mind that you might have to settle for a reduced figure, and begin by asking for the whole of the outstanding amount, plus accrued interest and the statutory collection fee - and be quite clear in your own mind as to the minimum figure you are prepared to accept.

Applying for interest and collection fees from the outset is a very advantageous collection tactic to use because it allows you to negotiate downward from a position of strength. If, for example, the account has been outstanding for a long time, accrued interest might amount to a considerable sum. Your first concession would therefore be to agree to waive a portion of it, which would reduce the outstanding balance without your having to write anything off.

Get a Binding Commitment

Collecting an account often means negotiating for settlement and - these days - being prepared to accept lesser sums in full and final settlement, or lengthy repayment periods.

Many debtors deliberately put their creditors in contact with employees who have limited authority and can't make binding commitments on behalf of the debtor company so as to give themselves a potential 'out' from any arrangement.

If you have 'friends' within the debtor organisation, you're unlikely to fall victim to that particular tactic, but if you don't know your debtor that well, you'll need to find out the names and titles of people who are definitely in a position to make a binding commitment to pay your overdue account before you make even an initial approach.

You can do this by ordering a Company Search. Once you have the names of the Managing Director, Finance Director, and Company Secretary from the Search, a quick telephone call to the debtors main switchboard might get you e-mail addresses and even direct line numbers - and it's never too late to try to make appropriate 'friends', so try to find out who is handling your account at the same time, and plan to make contact with that person, too.

It's a good idea to collect as much current information about your debtor as you can before you begin negotiation for settlement. Ordering a Company Search, checking The Register of Judgments, Orders and Fines, The Individual Insolvency Register, and any one or more of the many available debtor registers will enable you to find out more about your debtor's real situation. And, of course, you shouldn't forget the internet. Websites and social networking profiles can be a mine of useful information about companies and people.