Compassionate Collection of Debts Yields Client Loyalty
Boston Business Journal • June 28-July 4, 2002
By Jennifer LeClaire

When times are tough, you don't always have to beWhen Boston-based MaidPro Corp.'s customers don't pay their bills on time, company founder Mark Kushinsky doesn't resort to threatening letters to collect money that's past due.  Rather, he handles the situation with kid gloves.

That's because Kushinsky treats collections as a customer-service issue, realizing that economic doldrums are leaving some honest, well-meaning clients unable to pay their bills on time.

"Our theory is that things will improve soon and that many of these organizations will eventually be back on their feet," said Kushinsky.  "Therefore, it is important to keep up a solid relationship."

Instead of sending a battery of bills, Kushinsky tries to understand the client's needs.   Then MaidPro works out payment plans, sometimes requiring a personal guarantee for future credit.

"Many customers still have needs and can't be cut off," he said.   "What is clear to me is that if we continue to have a relationship with these companies, we will be paid first."

Kushinsky's strategy represents a growing trend in debt collections:  a focus on customer service.  This approach is a more compassionate means for small business owners to get paid what they are owed, said experts -- and it often bears a fruit called "customer loyalty."

Customer's perspective
Certified financial planner Bryan Place of Place Financial Advisors in Belmont said it takes a delicate touch to handle past-due payments while also retaining important customers.

"Too many small businesses take the over-the-top tactic of breaking kneecaps and sending threatening letters.  Not only does that not work, but you also lose the customer," said Place.  "Oftentimes, you have to view it from the customer's perspective."

That means showing compassion the way MaidPro's Kushinsky does.  For smaller businesses trying to make compassionate collections work, there are a couple of steps worth noting, say experts.

Start out with a low-pressure invoice and include a self-addressed, stamped envelope instead of a business reply mail envelope.  This small detail, said experts, can be a big distinction in customer perception.

"Business reply mail gives the customer the impression that you are a large company and delaying you isn't that important to your bottom line," said Place.  "A self-addressed stamped envelope adds more importance to it and can speed up the rate at which people respond."

The next step is making a personal call or office visit at 30 days past due.  This, too, can guard against the "large corporation" perception that leads customers to believe it's OK to leave your business in the financial lurch.

Humanizing the process lets clients know that you are a small-business owner who depends on timely payments to keep the doors open.

"If there is a dispute, you want to know about it right away," said Larry Gordon, owner of First Financial Resources, a collection agency in Framingham.   "If there is no dispute, then just make sure they got the bill.  That serves as a friendly reminder, and it's considered good customer service."

If mild-mannered methods don't work then tougher tactics may be the only alternative.   Late charges and interest fees are two popular strategies.

Collection agencies should be a final resort, said experts, because it almost always means losing the customer.  It almost always means heavy fees too.  Collection agencies and attorneys can charge up to 50 percent for their services.

"Rarely have we used a collections attorney," said Jeff Behrens, founder of the Telluride Group, a technology management and support firm in Newton.  "They get paid one-third. ... This is our last resort.  (We've) used it twice in 10 years."

Finding a collection agency

Still, sometimes the only option is to turn to a firm that specializes in collecting overdue accounts.  Experts said that small-business owners should examine an agency's collection methods to make sure those methods are in line with the Fair Debt Collection Practices Act, which prohibits unfair tactics.  The reputation of the firm is also critical, and experts recommend a licensed agency.

"Check references to see how they've handled collections for other clients.   Find out if they were successful and if they violated any type of trust," said Place, who also suggests working with agencies that serve similar businesses so they understand your company's needs.

Of course, the most efficient way for a small business to get what it is owed and to reduce debt-collection efforts is to implement a debt-prevention policy.

The policy, for example, outlines procedures to be completed before extending credit.   Experts said a formal credit application should include street addresses (no post office boxes), dates of birth and phone numbers of the principal borrowers, because without this information it can be difficult to track down nonpaying customers.

As opposed to extending credit, some small business owners implement policies that encourage clients to pay up front in return for a discount.  Still other business owners request full or partial payment up front.

Regardless of the payment terms and conditions, the key to any good debt-prevention policy is to communicate terms thoroughly, said experts, especially payment due dates.

"The most important thing is to have a final date and stick with it," said Place.  "Don't change the rules for each customer.  You have to be consistent with your rules."

Compassionate collections

Seven steps to take to make your debt collections more effective:

• Don't lose potential long-term customers with knee-breaking tactics.
• Work out a payment plan.
• Avoid business reply mail envelopes with bills.
• Make a personal visit at 30 days past due.
• Request full or partial payment up front.
• Keep consistent payment due dates.
• Call a collection agency only as a last resort.