I respect the philosophy that, and I quote, "No Catholic child is excluded from Catholic schools on the grounds of genuine financial difficulties." But, from a commercial point of view, this makes collecting unpaid school fees in this environment extremely difficult. Many Islamic schools have the same philosophy.
Most people ARE honest. I've worked in the area of account management for many years and still very firmly believe this to be a truism. BUT, there are ALWAYS (unfortunately) some people who abuse this, especially when they know that they don't HAVE to pay if they don't want to. They can cry "poor", not pay ... and, get away with it. It's very common to hear delegates in my workshops tell of families that could pay, but don't. I was in one New South Wales Catholic School a few years ago when the Principal said, "Look Michael. See that woman, over there, in the Mercedes, dripping in jewellery? She is not paying AND they've just come back from a holiday in the States." He went on to explain that he knew of other families who were "doing it tough", but were paying small token amounts in good faith. "It just isn't fair", he said, "and we can't do anything about it". I disagree. You CAN do something about it.
How to solve this dilemna.
- In the short-term, send this Circular.
- In the long-term, work out a plan-of-attack that will change the Car Park Chatter among parents from
* "If you can't afford the school fees, don't pay them. They won't kick Amy out of school" to
* "You'd better make a payment arrangement or do something because, although they won't kick Amy out of school now, they will sue YOU after she's left ... IF they think you could afford to pay but aren't".
And you only have to get firm with a few (very few) exited families and it won't take long for word to get around. (That's how one Catholic College improved their collection results from 79% to 106% in one year. They simply worked out a plan-of-attack, 'chased' a few selected exited families and collected more fee payments that had been raised that year!) more details ...
This simple strategy
- allows schools to show compassion to families in genuine poor financial circumstances, while, at the same time
- changes "Car Park Chatter" so that the (few) families intent on doing the wrong thing (not paying) realise that there WILL be consequences later.
"wait til your Father gets home" to
"wait til she leaves School".
A few years ago we sent a circular with the following wording to selected parents of girls in a private college whose fees were overdue. It didn’t go to all parents with overdue fees, just to those that were approved by the Business Manager. It wasn't personalised, just included with the next terms fees - no extra postage!For the first three weeks of the next term that college tripled their budgeted income from fee payments as a direct result of this circular. No phone calls were made, no other correspondence was sent. Nothing else whatsoever. Just this circular.
Please find enclosed with this circular the statement for next terms College fees. This circular is being sent out to the parents with overdue fees so that we can take this opportunity, before the new term begins, to remind everyone that payment of each term’s fees is expected to be received during the first week of each term.
With this in mind, over the next few weeks the College will be contacting any parent who has overdue or unpaid fees by both letter and telephone to follow up payment of their account so that future plans and developments at the College are not affected by their non-payment. We are confident that all parents of our students appreciate the necessity of maintaining a healthy cashflow for the College, as it is our children who are the ones who benefit.
Would any parents please contact me personally if they are experiencing any financial hardship, as the College is quite amenable to making realistic payment arrangements for parents who find themselves in such situations.
Why did it work?
Fear of the unknown. People don’t like to be contacted by phone about overdue fees. This circular tells them that they will be if the account remains outstanding. No extra postage costs either. Simple huh?
When negotiating a payment arrangement with a debtor who WANTS to pay but, quite simply, can't afford the full amount, will a round number (eg: $1,000 per week) or an 'odd' amount (eg: $995 per week) get you a better agreement? According to a Columbia Business School study it may be better to avoid using round numbers.
To quote from their website ...
In making opening offers, people generally use round numbers — listing a car for $10,000, instead of $10,125. New research by Professors Malia Mason and Daniel Ames and doctoral students Alice Lee and Elizabeth Wiley highlights the folly in this round number habit and reveals that negotiators can be more effective when they use precisely expressed opening offers. According to the researchers, the precision with which a negotiator conveys an opening offer — as $100 versus $98 or $102 — signals his or her confidence in its appropriateness.
Another excerpt from a Wall Street Journal article
When it comes to negotiating salary, Ms. Mason's research indicates that a job candidate asking for $63,500 might receive a counteroffer of $62,000, while the request for $65,000 is more likely to yield a counteroffer of, say, $60,000, as the hiring manager assumes the candidate has thrown out a broad ballpark estimate.
So, how to get the best payment arrangement?
1 establish exactly how much they are SHORT of paying the full amount - read this to find out how.
2 be the first person to come up with a figure - that will become the 'anchor'. Just like the word suggests, you want to set a reference point around which the negotiation will revolve. Making the first offer can be to your advantage, as this offer might set the height of the negotiation bar. This anchor is the arena where the two parties will wrangle in a tug and pull negotiation scenario. Interestingly enough, many studies have shown that the first offer has a strong psychological pull, almost a magnetic lure. The resulting agreement is often strongly attracted towards the person who proposes the first offer.
3 start your payment negotiation with an 'unusual' number.
The most commonly applied “collection procedure” for many businesses is to wait for payment. Statements get sent out once a month and ... they wait some more.
Many go like this:-
1. They do the job.
2. Send the bill.
3. Wait for payment.
4. Send a monthly statement.
5. Wait for payment.
6. Wonder why the bill hasn't been paid.
7. Wait for payment.
8. Send the next monthly statement with a humorous collection sticker on it.
9. Get upset because the bill still hasn’t been paid.
10. Wait for payment.
11. Find out that they can't pay their own bills or that their overdraft has blown out.
12. Aggressively chase the account customer for payment.
DO NOT USE THAT POLICY.
A better way
Do something definite as soon as the payment is overdue. A polite reminder letter, an email, an sms message, a phone call, but something AS SOON AS THE PAYMENT IS OVERDUE. And then follow a simple collection procedure so that you, without being offensive, become hard to ignore.
Don't just send out statements.
Statements (sometimes called “The Lazy Man’s Way to Collect Accounts”) are a very valuable reconciliation document where many items have to be reconciled or many invoices issued in any one month. Product suppliers (like a hardware store, for example) can only have trading terms where the payment is due so many days after the end of the month. They serve a very useful function for this accounting exercise. But they serve no useful purpose as far as account collections go if many of your customers get only one invoice a month.
Statements can often slow down payments
Statements can encourage customers to pay you later, rather than sooner.
For example, do your statements look like this?
At the end of each month the balance bounces across from one column to the other. Interesting to watch - expensive to experience. If your account is still not paid the next month, the payment amount bounces over to the next column and so it continues! And, if one of your customers is "doing it tough" and decides to only pay creditors "90 days and over" (see just ask) your first statement (where the balance will be in the ‘Current Column’) has got NO chance of being paid - probably at least for another three months!
In other words, if you raise an invoice on 10th January for $3,000, it will appear in the ‘Current Column’ on your statement. It won’t appear in the ‘90 days and over’ column until the end of April. So, if you're only using statements as your “collection policy” you might get paid at the end of May (if you're lucky), some four and a half months after you raised the invoice. Er, that's as long as he
* is still in business and is account
* remembers what the bill was for and
* doesn’t decide to dispute anything and
* isn’t on holidays and
* feels like paying.
If you must use statements
1: adopting the following format when you next order stationery:-
2: get the person that supplied the service or product to the debtor to put a short hand-written note on the statement itself. Wording such as
Any problems, let me know.
DON'T use coloured or funny stickers - they don't work. The debtor knows how long it took you to put the stickers on and they have virtually no "emotional impact" value - whereas the hand-written note does.
Using a collection hierarchy and following up unpaid accounts very quickly, while being polite but persistent, is much simpler, less confrontational and far more effective than chasing slow payers later and harder.
How to set up and work a Collection Hierarchy
Start chasing accounts gently with an individual. If they're not effective in getting a paymemt in, ramp it up, get a more senior person to take over the follow up. AND, if THEY aren't successful either, bring in the Big Guns then. But only then, only if the first two people have not been successful.
to explain ...
The most junior person in the business should always be the first person to start phoning or writing to customers about overdue accounts. He or she may not actually be the most junior person, but should be the person that customers would consider the least threatening. If that person is not successful then they can refer that account on to the next person up in the hierarchy.
The customer then has to explain why they have not paid the account all over again to this second person. The more people in the hierarchy - the more times the customer has to tell their story if the payment has still not been made. The more times they have to tell their story - the more difficult it becomes for them not to pay.
The more difficult it becomes for them not to pay - the more likely it will be that you will be paid in preference to other creditors as soon as they do have the money to pay anyone.
This gradual increase in psychological pressure brought to bear on the debtor is extremely powerful. Much more powerful than the Big Gun following up an account from the outset. Best Practice - Three levels.
1 An Information Gatherer
Someone to inquire if the payment has “already been sent” (Secretary, Receptionist, Accounts Clerk, Girl Friday, Parent Liaison, Client Liaison, Andrew Thomasson ...)
2 A Problem Solver
A more senior person who can contact the debtor with a “How can I help” approach (Office/Branch Manager, Manager of Accounts Receivable ...) and, lastly,
3 The Decision Maker
The most senior person (Business Owner, Partner, School Principal ...) who, armed with all the facts, can decide on the next logical collection action to be taken. By being last in the chain or hierarchy he can also adopt the "How can we resolve this problem together?" attitude. He can speak to them as an equal, as an ally - their friend. He will be armed with all the background notes on all collection action taken to date and can speak to the client from a position of knowledge, not from a position of frustration or annoyance. Logic will rule the discussion - not emotion.
You've had a hard day. You get home and walk in the front door. Joy. Calm. Peace. You change. Your wife calls out, "Oh Honey, the accountants called today and left a message for you to call back. They asked if you can call them back tomorrow". (Note: No details of why they were calling was left with the wife - but YOU know why they called - you haven't paid their bill yet.)
Next day. You get to work. "Oh John. The accountants called and asked you to call back. Don't know why they called us in Sales. They asked if you can call them back later today". (Note: No details of why they were calling was left with the person in Sales - but YOU know why they called - you haven't paid their bill yet.)
Later that day. You get a text message on your mobile, "Please call when free - ABC Accountants - phone 07 1234 5678". (Note: No more details in the text message - but YOU know why it was sent - you haven't paid their bill yet.)
Has the debtor got a Fax machine, Receptionist, Business Partner, Office Manager - YOU get the idea. Timing of course, is everything. You don't want to harass the debtor but you DO want to be HARD TO IGNORE. As always, start collecting gently, then increase pressure by reducing the time between your collection actions.
One of our clients was an Orthodontic Practice. Parents weren't paying for their Initial Consultation on the day of the consultation. "Please send me an invoice", being the most common answer to the Receptionist when asked "Would you like to pay for your consultation today?". The invoice was sent out (extra work), and parents were followed up if the invoice wasn't paid, which happened quite frequently (extra work).
So, we asked a couple of questions and this is what we did to solve the problem.
1: We gave the Receptionist a short script to follow for when an appointment was being made. Part of that phrasing was "We take payments for initial consultations when you come in. Will you be paying by cash, credit card or eftpos?"
2: a short letter or email was sent to the client to confirm the appointment and to mention that payment could be made by cash, credit card or eftpos.
3: After the consultation, the Receptionist added the word HOW to her question about payment ... "HOW would you like to pay for your consultation today, by cash, credit card or eftpos?".
Did this work? A resounding YES. Why? Because the client was told three times (on the phone, by letter/email and, finally, in person in the Waiting Room - with other people looking on.)
MOTTO: Don't ask a Yes/No question if possible. Plant the seed about payments a few times and then ask HOW.
Debtors have been known to come up with all sorts of weird and wonderful excuses why they cannot, or will not, pay an overdue account. But, behind every excuse there is sometimes another reason. Of course, sometimes the excuse IS the real reason but many times the excuse is just that ... an excuse.
Your job, as a creditor, is to find out what the real reason is. Once that is known, you can take the appropriate action.
For example, if the reason is genuine, a disputed account balance, you can help the client by proving that the balance is correct or crediting his account if you are in the wrong. If the client is suffering a genuine cash flow problem then, again, you may be able to help him by being prepared to consider a repayment proposal.
BUT, if you establish that the client is simply stalling payment so that the money (that should be sitting in your bank account) is being used for something else, then a totally different approach would be necessary. Think of any excuse that has ever been given to you by a client with an overdue account and the real reason for the late payment can usually be put into one of these categories:-
1. A Genuine Dispute - Disputed balance or unhappy with some aspect of the work performed.
2. Careless - They forgot or didn't understand when they were supposed to pay.
3. Disorganised - Their own books are in a mess.
4. No Money - The intent is there but not the cash.
5. Unconcerned - Couldn't be bothered and too busy to worry about the unpaid invoice.
6. Dishonest - They want to use your money for their own affairs.
1 - A GENUINE DISPUTE
The debtors may have a genuine dispute about the invoice. They may be unhappy with some aspects of the work done, the amount charged or have some other complaint. This is by far the easiest of the reasons to resolve because the intent to pay is probably there.
BUT ... you have to know that there is a dispute to be able to sort it out. AND the earlier that is done, the earlier the invoice will be paid. Therefore, the earlier you start your collection process - the sooner you will find out if the invoice is disputed or not.
Answer? Start the collection process as soon as the invoice is overdue.
2 - CARELESS
If the client 'forgot' to pay the invoice or did not understand the firm’s trading terms - then this is partly your fault for not making your trading terms clear enough. It is very important to set your rules from the beginning. If you are not sending out reminder letters/emails or phoning for payment, some debtors will genuinely forget.
Answer? Don't wait for the invoice to be paid, Christmas may come sooner. Phone or, preferably, write to these debtors as soon as the invoice is overdue.
3 - DISORGANISED
This third reason could be simple inefficiency, poor personal money management or they may just pay creditors on a "pay 'em when they chase us" basis.
Answer? The creditor (you) that is going to get paid first is the creditor that asks for payment early in the piece and then keeps on asking. (Ever tried not feeding your cat when you first get home if that’s the time that the cat normally eats?)
4 - NO MONEY
The first three reasons are not too hard to sort out. The dispute can be resolved and both the "careless" and the "disorganised" merely need prompt and regular actioning. But now, we are looking at the first of the problem reasons.
Answer? As soon you identify that "no money" is the real reason it is absolutely vital to find out two things:
1. if the problem is short-term, or
2. if they are in serious, long-term financial trouble.
Your next course of action will depend on what reason they gave you for being short of money.
For 1, make a firm payment arrangement, put it in writing and follow it up if that arrangement is not kept.
For 2, however sympathetic you may be to their plight, try and get them to come into the business to see you (if at all practical). Talk through the situation with them face to face. You need the answers to a few questions.
1. Are they genuinely trying to resolve their problem?
2. When will they be able to pay?
3. Do they care?
4. Are they worried?
5. Can you help?
6. Are you prepared to wait for their crisis to be resolved?
If they can’t or won’t come into see you, write to them. There are several suggestions for wording in our e-book that will help. Also many tips in this blog to deal with this exact situation.
But be assertive. Waste no time and follow your laid down procedures.
5 - UNCONCERNED
Unconcerned? Too busy to worry about the overdue invoices? You are interrupting their work (or their favourite TV show) when you phone them about it? To use an Americanism, this client has attitude. And that attitude is not convivial to a good ongoing professional relationship. How do you deal with this one?
Answer? Extremely quickly.
Take the same course of action as you did for 2 (in ‘No Money’) above. The letter/email could be adjusted depending on the conversation to advise these debtors what steps you intend to follow. Don't waste time. Do it now.
6 - DISHONEST
If this is the reason, then they are treating your business as an interest-free banking facility and abusing the system. Don’t let debtors like these get away with paying you late. You’re probably better off without them.
Answer? Same as Unconcerned.
There's no magic to collecting money but a few moments spent planning your strategies for different events will pay dividends in terms of prompter invoice payments and less hassle once:
• you have established your own rules,
• you know what to do, and
• you know when you’re supposed to do it.
How to get slow payers paying more quickly by phoning them and NOT asking them to pay!
There's a guy in the States who puts out some tremendous Sales Training emails. I don't subscribe to many, but I do to his. His name is Bob Oros. (Click here to get a copy of a great, free little e-book he's written called "Dominate Your Market".)
But I digress. He's collating "collection tips" from his email data base and will give a copy of the e-book he'll produce as a result to everyone who sends him tips. In his own words from his email today ... "If you have not emailed your best collection technique or strategy, you still have time. I will be compiling all the responses in a special report and sending it to everyone who gave their input."
This was my contribution ... (I sent this using the name of an alias that we use in our own business - Jane Sands.)
I am NOT a real person!
BUT, clients who haven’t paid our accounts don’t know this! I’m a “made-up” name. I do not exist.
We do this because it
• makes collecting any unpaid accounts much less confrontational,
• allows the debtor to “save face”, and
• leaves the creditor as someone who’s trying to help, not hassle.
How does it work?
1. Any ‘please-pay’ emails or letters are sent out under my (?!) name as soon as an account is overdue,
2. All that a ‘real’ person then has to say when making a “collection” phone call is
“Hi John. My accounts people are chasing me up about one of your invoices. Can you help?”
3. And then just listen; after blaming ME (!!) for having to make the call.
And I’m not a real person.
Sounds ridiculous, but it works ... extremely well!
Try it for yourself - Just once.
You'll be hooked. Promise.
(FYI - JANE is my sisters name.
SANDS is my Mother's maiden name.)
A fantastic time-saver. Create a 'library' of standard phrases, entire emails even. Watch your productivity soar! This post explains how to use Microsoft Quick Parts. Use it to save commonly used wording in emails. It's the best way to insert commonly used phrases, paragraphs and entire emails very, very quickly without having to type them all out again from scratch.
It's a simple auto-text function. Create new Quick Parts as you work.
The email in the blog post before this one was written using Quick Parts. It's a great time-saver which you can also use in Microsoft WORD.
How to create a Quick Part
* Open outlook.
* New mail message.
* Type your message in the body of the email.
* Highlight the wording you want to save.
* Quick Parts.
* Save Selection to Quick Parts Gallery.
* Give it a name.
* Open a new email message.
* Put the cursor in the body of the email.
* Quick Parts.
* Click on the message you want to send.
How to locate one quickly
If you have many 'saved' standard messages (as we do)
* Open outlook.
* New mail message.
* Quick Parts.
* Right click in any of the messages.
* Select "Organise and Delete".
* Highlight the one you want.