Shop Talk: How Are You Collecting on Bad Debt?

by Mark Green

Database Marketing Expert

Author website

Seeing that 2007-08 were extremely rough years in our industry, we at Top of Mind experienced a significant rise in slow-pays and no-pays.  Ultimately, we found ourselves with high-five figure 90-day+ receivables.  Anyone who’s ever been in this position surely is aware of how uncomfortable it can be calling clients and asking for past due payments.  After all, if we’re doing our jobs right – our clients ultimately become our friends.

There are basically two common approaches to collecting on receivables – and they’re polar opposites of each other:

Approach #1)  The aggressive, finger-pointing, condescending way: I think this is the way most businesses pursue bad debt.  Heck, when I was young and ignorant, I let a few personal account balances go late.  The increasingly frequent calls I received from my debtors became threatening and borderline obnoxious.  Certainly I wanted to make good on my debt, and ultimately I did.  My motivation in paying the debt, however, wasn’t to please these bill collectors – it was simply doing the right thing and paying my bill as soon as I could.  As far as my debtors were concerned, their tactics worked.

Approach #2)  The compassionate, understanding and communicative way: I’d like to share how I’ve handled our bad debt over the past couple years.

• I do not delegate collection calls to my employees.  In my opinion, this is the kind of s**t work that causes employees to dread coming to work.  It isn’t my employees’ fault that we let some of our clients get behind on their bill, why should it be my employees’ work to clean up a mess management created?  99% of collection calls come from me as the President of our company (with the other 1% coming from my partners).
• I have one ground rule on how I treat a debtor – if they’ll communicate with me, I’ll bend over backward to help them.  Clients who owe us money aren’t treated as “B-class” clients.  I use my CRM system to take copious notes on all phone conversations and email threads – and I set reminders to check the status at reasonable intervals (depending on the client/debt at hand).  Every situation has a unique game plan.
• I do not let bad debt consume me or take me off my A-Game.  Getting pissed off about a slow-paying client doesn’t accomplish anything.  Trust me, it used to put me on massive tilt until I realized getting mad only made the situation worse.

Takeaways:

1)  Whether you take approach #1 or #2, a high percentage of clients will end up screwing you and there’s nothing you can do about it other than keep a closer eye on receivables in the future.

2)  Ultimately, what we’re looking for is ROI, right?  Well even if approach #1 yields a 60% success ratio in collecting bad debt, chances are you’ve lost all future revenue streams from these clients.  And your first reaction might be to say “Fine, they’re deadbeats anyway!”.

But let’s say approach #2 yields only a 30% success ratio.  The 30% who cleared up their balance not only remain clients, but they’re clients for life.  Chances are good you’re not the only one they owe money to.  I’d even argue that they’re paying debtors following approach #1 before they me.  But then something miraculous happens.  Rates drop to 4.5% and refinances are flying in at unprecedented rates.  One moment, the mortgage firm was wondering whether to close the doors – the next, they’re working 16-hour days taking loan applications.  A windfall of unforeseen revenue results.  Hope returns.

I want to be around for that.

Why did I write this article?

I was inspired that we just received a check for $1,000 from a client who’s invoice is 431 days past due.  The check wasn’t sent in response to an email or phone call I’d made last week either.  I had last checked in on this client over a month ago.  Man was I glad to see that check.  But I got to thinking:

No matter how much I loved receiving that check, my client must have loved cutting it to me 1,000x more.  And it’s these small victories for the good guys that make all the pain and stress worthwhile.

I know that this article is likely going to be viewed as “common sense”, but if you’ve experienced similar successes in your business, would you please share them in the comments?