What debtors say about how to collect money off them
One of the overriding themes of the work we do with collection staff is the need to understand the people - the debtors and the staff of debtor companies - that you're working with. A few years ago we did some interviews with debtors in New Zealand and Australia - people who had had financial problems, or worked for companies that had had financial problems. In some cases the individual concerned had gone bankrupt or the business had gone bust. In some cases they'd come right and paid their debts.
There is tremendous value in being able to put yourself in the shoes of the person you're dealing with. One of the common problems for collection staff is a lack of understanding of the debtor's situation. How can a collector who lives at home with his parents understand the realities of paying the bills for a family? How can a credit controller who has only ever worked for wages for a large business appreciate of the ups and downs of sales and cashflow for a small business? How can credit staff who have never been debtors themselves understand the stress that debtors are under - the arguments with spouses over money, the fear of the shame of business failure, or the horror of having to tell staff their jobs are gone?
Well, the good news is that you don't have to have lived through every hardship to understand it. Here are some of the things that the interviewees said to us and four important points that I drew from what they said.
1. When people are in a tight spot, they want to be treated with respect.
Rene (not her real name) was unemployed and on a sickness benefit. She had had plenty of experience of creditors calling her for money. Respect - she used the expression "treat you like a person" - was one of the key themes of her interview. She wasn't a very strong person and she wanted to pay her debts, so she would tell creditors what they wanted to hear. However, it's one thing to promise and another to actually make the payments. People who failed to treat her with respect risked "getting her back up" which meant she was "not so willing to participate or do what you have to do." She said:
"I mean some people don't even want to know ... [I]f they treat you like a statistic you're not so willing to participate... I mean it's such a huge bonus when people are nice to you and treat you like a person... you're more willing to do something, you know?"
2. Threats when collecting debts often extract payment in the short term but can damage the relationship with the customer
Gerald was accounts payable supervisor for a relatively large manufacturing company which had some serious financial difficulties which it has since recovered from. He makes the point that:
If people were really snaky and they held a gun to your head, if you like, by stopping credit because you had nowhere else to go, well you just had to pay them. [But] my boss has got a long memory and there were a couple of companies that really gave him a hard time and really hassled us and... now the company's in a completely different position, but because they gave him such a hard time every month they have to wait. He said, "right, when things come right, they'll down to the back of the queue," and that's just what happened.
There was one...ah, credit manager who made our financial controller so angry that he sent an email to all the branches saying, "I don't care if it costs us money, we are not using these guys again. Use some other supplier."
3. But if you are too soft, some people will pay the creditors they fear, rather than paying you.
Alison went into the restaurant business and failed. She talked to us about paying people she feared and not paying those who were too soft.
"The nasty ones shrieked the loudest and they're the ones that frightened me most. You know the nice ones, I would think, look you're so nice I want to pay you and what I did with the nice ones was probably the wrong thing now in hindsight. I probably thought they were too nice and I would go and see them and I'd say look look I'm doing my best, this is what's happening and they'd say tut tut, I'm sorry and this and that and they were too nice, and they'd say well you know, 'okay, do what you can when you can.' Now what I should have done with these nasty ones, I should've said look to hell with them.
Obviously, "do what you can when you can," is far too soft.
4. You need to show the debtor that you understand.
Here's an example, as told by the debtor, of a credit manager who got the balance of respect and assertiveness right. Trevor was in the building trade and had a successful business in Sydney for many years. Then he struck a bad patch, ran out of cash, and the business failed. He gave an example of a creditor who was effective at collecting money from him. The first thing this credit manager said was, more or less, "I understand and here's why I understand." Here's how Trevor put it:
"There was one gentleman who was very effective with his job and basically said, look, I know what's happening, I've had a few friends in the building trade that have gone down this path as well but we need to get this arrangement in place and basically I can't leave the conversation with no arrangement in place so you have to give me something....In the end we arranged to pay something and he was quite good. Ah, he kept ringing us every 3 or 4 weeks just to check up that we were paying and whether we could afford to pay a little bit more."
I think it's significant that Trevor referred to the creditor as a gentleman. The credit manager showed respect, he said he understood and gave some evidence that he did, he didn't make threats but he was assertive and persistent and efficient, and so he got respect in return, as well as collecting his company's money.
Peter Hattaway - www.hattaways.com - is a director of Hattaways, specialists in credit management training and consulting. This article appeared in the New Zealand Mercantile Gazette in August 2006.