The ‘Cs’ of collection

COVID-19 has been ruling the lives of many Filipinos and, undeniably, it has been a major challenge to the soundness of several industry sectors. With the rising cases of the Omicron variant, its effects are instantly felt as some were observed to significantly cut on costs and operations. Worse, some cut on manpower to thrive.

Micro-, small- and medium-sized enterprises (MSMEs) are among the sectors badly hit by the pandemic. They most certainly experience bad debts and due to economies of scale, large companies can capably handle it more than MSMEs, since smaller businesses are highly dependent on their daily sales and collections to survive.

Sales and collections are two of the main weapons of businesses to survive in these trying times. Sales promote business growth by building loyalty and trust with the customers, and collections, on the other hand, secure continuous operations by providing a steady cash flow. Some businesses tend to focus on sales more than collections and, by doing so, they are already committing a business mistake. Simply put, when collection is deprioritized, lesser collections will mean lesser cash flow. And when there is a limit in cash flow, there will be limited opportunities for these MSMEs to grow. With the Covid-19 situation in the background, it is a must for every company, big or small, to come up with effective collection efforts to generate positive cash flow, reduce delinquency rate and avoid or keep bad debts at an acceptable level.

How can companies increase their capacity to collect? Remember the “Cs” of collection:

1. Classification

Effective classification or segmentation plays a vital role to increase the probability of collecting payments by assessing overall portfolio based on risk level. The longer the aging of debt, the harder to collect. Segmenting the portfolio aging helps you identify the less risky accounts from the riskier ones. While the latter demands prioritization in collection efforts to control the delinquency rate, pre-delinquent accounts also need effective management to avoid becoming delinquent. Remember, debt aging signifies the level of difficulty to collect thus recovery from pre-delinquent accounts is very important to avoid further credit losses.

2. Collection strategies

Segmentation is insufficient otherwise combined with effective collection strategies. Establishing quality calls is one of these. First contact with the client is very important — from the information you will acquire to building rapport, as it can make or break your transactions with the clients. Start by equipping yourself with important details pertaining to the debt. Then, by managing the pitch of your voice and enunciating the words properly, it will give you the authority to command the flow of conversation. Emphasizing the urgency of the matter by providing facts will keep you in control. Get as much information as possible through probing. Most importantly, don’t lose your composure when clients try to manipulate the conversation by being angry or upset. This will give them power not to adhere to any negotiations. Before hanging up the phone, make sure to reiterate all important parts of your conversation. This will show your attentiveness while on phone calls. Lastly, accurate and complete documentation of call outcome is a measure of an excellent quality call.

Honing negotiation skills and providing multiple options will help you alleviate credit losses. Always demand for full payment. If a client is incapable of settling the whole financial obligation, accept partial payments and restructure if necessary. Offering payment options will help you eliminate delinquent accounts in your portfolio.

3. Customer relationship

The most important “C” in collections is your customer relationship. Customers are the very reason why businesses exist. Making clients happy during the collection process is indeed challenging, but winning your clients over will be much rewarding. Harassment through use of any foul words will never help you at all. Debt recovery may be your top priority, but you have to be mindful of your branding and reputation. Your business should keep a friendly atmosphere, in turn, clients will reward you with loyalty and trust, helping your business to thrive further.

An old business expression, “The sale isn’t complete until the check clears,” is always worth remembering. Sales can be the core in increasing gross profit but without balancing it with effective collection strategies, businesses cannot survive.

Franklee Caldino is a collections officer at First Circle. With his seven years of collections experience, he is helping the company oversee the early stage collections bucket.