CAT / FIA FFM Syllabus F. Credit Management - Debt recovery methods - Notes ^{3 / 7}

Some customers are reluctant to pay

The debt collector should keep a record of every communication.

Debt collection techniques:

• Letters: cheap but not very effective

• Telephoning: expensive, but fairly effective

• Email: cheap and significantly more effective than letters

• Fax transmission: medium cost, medium effectiveness

• Personal visit: very expensive, but very effective

Final letters

If the first reminder fails to get an appropriate response, the firm may:

• Issue a second reminder, then a third reminder

• Issue a final demand, after which legal action is taken

If the customer has already received and ignored an invoice and a reminder, there may seem to be little point in adding a second reminder letter

However, the company may wish to increase the pressure gradually, as legal action may unnecessarily upset an important customer.

1. The customer may only have paid part of the bill. 

   Short payment could mean any number of things:

   (i) Invoices not input to the receivables ledger system before a cheque run
   (ii) Agreement with sales staff
   (iii) Deliberate under-payment

2. A valued customer might pay perhaps if the supplier threatens to refuse to sell any more goods on credit until the debt is cleared. 

   This is less serious than legal action, but still significant.

Telephone

The telephone provides greater value than a letter, and the greater immediacy can encourage a response. 

However telephone calls may be more expensive than letters and the telephone may take up more of the credit controller's time. 

There may also be problems of getting through to the right person.

Email

Email is used increasingly as a method of demanding payment. 

It can give a sense of urgency and can also be used frequently without excessive time being needed by the sender. 

Email messages cannot be diverted by the recipient in the way that telephone messages can be.

Fax transmission

A fax can be used to demand payment as a supplement to a phone call, or to give a sense of 'urgency'.

Fax can also inconvenience the customer slightly: fax paper costs money, and your (repeated) requests may prevent other faxes coming through.

Personal visits

Personal visits are time-consuming.

• They should never be made without an appointment.

• They should only be made to important customers who are worth the effort.

• Any agreement should be quickly confirmed in writing.

Personnel issues

As a rule of thumb, the older the debt, and the more problems with collecting it, the more senior should be the company official sending the letters, and the more senior should be the proposed recipient.