REDUCING BAD DEBTS

Customers' paying habits are quickly revealed when you take control of your debt and track past due accounts. If you bill regularly, most credit users will pay as agreed. A certain number will pay after a mild reminder. Some will have changed circumstances that make it difficult for them to pay, such as illness or the loss of a job. After a reminder follow-up call, they will voluntarily give good reasons for nonpayment, promise future payment and then fulfill their promises. Usually no more than 5% of debtors require more attention, but eventually they will pay. One way to avoid chronic debtors Ð proper and consistent attention to keep the account in good standing.

HOW TO KEEP ACCOUNTS IN GOOD STANDING

"Proper and consistent attention" means setting up a step-by-step collection schedule and following it. It means never moving backward or repeating a step in the hope of salvaging accounts. The quality of a collection program can be judged by the way you follow your schedule.

Resell the payment terms.
Does the customer understand payment terms? Have they run into a problem making timely payments? Take the opportunity to show your customer the benefits of reestablishing a payment schedule. A friendly but firm personal phone call or interview is usually the best way to get them back on track. For some customers, a "reselling" letter written appeal produces better results.

Insist on a firm payment agreement either by personal call or visit, or by mail. You'll need to use stronger persuasive techniques to come to agreement on a specific payment schedule.

Appeal to their sense of fairness, pride and desire for a good credit reputation. Attempt to set up a definite and clearly understood payment program, regardless of the circumstances. Long- and short-term extensions must be pegged to definite dates. Indefinite promises and nebulous payment arrangements are usually worthless. You extended credit in good faith and deserve what you are owed!

Stronger Action May Be Needed.
The debtor who honestly intends to pay seldom resents having a definite payment schedule set up. Anyone unwilling to cooperate needs stronger action. Demand settlement in full within a specified time. The term "settlement in full" is preferred to "payment in full" since it gives both you and the debtor greater opportunity to dispose of the debt satisfactorily. Whatever term is used, it should be brief and concise.

Don't fall into the common trap of reviewing the debtor's whole history of delinquency. It only causes arguments and embarassment. Emphasize that you want to receive the money you are owed on or before a certain date. State this briefly and only once and usually there will be good results. Unsuccessful cases will require final action.

Take final action.
The older a debt becomes, the more reasons debtors have for not paying it. At this stage, only occasionally will you actually recover your debt. Nothing remains to be done but to state that you will begin decisive action, such as placing the account elsewhere for collection if the debt is not paid by a certain date. Fully intend to carry out any action that you mention to the debtor.

Final collection action should be planned and used carefully. Be sure to mention only those actions that are legal and that you actually intend to take. Then, send a notice of intent by certified mail to let the debtor know what you intend to do next.

Some Bad Debts are Recoverable.
Incurring risk is a part of the credit game. Like all creditors, you will have some unpaid accounts even when you've done everything right and followed all the collection procedures. A certain percentage of these bad debts can be recovered, and it is important to identify this type of account. There is more to identifying potential bad debts than merely considering the age of the accounts.