The sweeping change from magnetic strip cards to chip cards has brought about some expected, as well as unexpected, changes. We wrote about chip cards last October (read it here), detailing some of the benefits and risks behind the change.
While the chip card is designed to protect consumer information and minimize fraud, it seems that the downside for merchants is greater than expected. According to Olga Kharif (Bloomberg) in her article “Chip Cards Slap U.S. Merchants with Unexpected Higher Fees”, just since October some merchants are already seeing a nearly 20% increase in debit transaction fees.
In addition to increased fees, increased fraud liabilities for merchants, and as much as a $600 price tag for required new payment terminals, it turns out that nearly 2/3 of the new readers are incorrectly installed. This is causing the readers to favor debit payment networks from Visa and MasterCard, rather than other possibly less expensive systems.
The result is increased fees for business owners (mostly small to midsize business owners), fees which could be as much as $7,000 for one small business owner, who is quoted in the article. But even the world’s largest retailer, Wal-mart, has filed a complaint in New York regarding the questionable processing practice, stating, “Visa stands to make more money processing those transactions.”
While consumers may not care about added costs to merchants, they should, because if it costs merchants (whether small businesses or Wal-mart) more money, it costs everybody more money.
Spring Broke? Yep. Here we go … college students everywhere are gearing up to hit the beach and for plenty of small businesses, that means one thing – slow payments. Let’s face it, most people live paycheck to paycheck. That’s not a condemnation of people, that is simply the truth. Think about it like this: every person has a budget. They will make “X” number of dollars this week, thus they can spend “Y” on bills and miscellaneous. Vacations and holidays introduce a variable into that equation and most people simply don’t plan for the expense – especially college kids that are working part time in low-paying jobs (and they won’t make any money the week they are at the beach!)
Have you done that? Sure, we love it when you call us, but the best way to get collections is to avoid collections. To do that, you should clearly set expectations with the customer and make it easy for them to pay you. Put yourself in their shoes – if I asked you to drive all over town to give me money, would that work out for you?
Make it easy for them to pay. Yes, we’ve mentioned it time and again, but it still holds true. We are receiving positive comments on the ideas, so hopefully our message is clear. It comes down to this – most customers want to pay. How can you help them to pay? We’ve discussed making it easy, but let’s also look at the premise that sometimes “stuff” just happens (Like, for example, Spring Break!)
How about the idea of flexibility in payment? Many types of software available today have the ability to handle this and when you are able to offer this both as an incentive (“you’ve paid six months on time, take this month off”) or emergency benefit (“I understand that your septic system had to be fixed, take this month off”). Beware, though, this is the realm of verbal conversations and notes on legal pads. Unless you have clear documentation, such as in your A/R software, you will have a hard time proving or disproving the circumstances.
Another option that really speeds up payments comes by sending truly accurate invoices. If these were sent via email, then pointing out how close the customer is to paying off the debt completely may actually cause the client to pay the total owed rather than simply a balance due. Just remember, everyone doesn’t have email, or they prefer traditional billing methods, so it’s important to meet your clients needs, while at the same time implementing policies and practices that increase the likelihood of payment.
We are rapidly approaching the point in the spring where many of our customers will be having to pay taxes and that could lead to some shortcomings in your A/R department. Again, simplifying your policies and making it easier for the customer to pay can make a lot of headaches go away – and take only a minor bit of work on the part of you and your company. For the heavy lifting, of course, you need to get a pro like Credit Service Company – we’ll be happy to help
Last month here at the Credit Service Company blog, we talked about implementing new – or at least updated – policies into your credit conversations and while we had some great feedback, we also received some questions.
The biggest among them was, by and large, about training. How to do it, when to do it, and what exactly needed to be taught.
When it comes to training Accounts Receivable representatives for your company, you absolutely have to start at the very beginning of the customer onboarding process. This is where the client’s expectations are set and when you, as a company, can firmly communicate what happens with respect to billing.
Many times, sales people gloss over this part because they aren’t comfortable with the sale. They are afraid that “buyer’s remorse” is going to set in before the actual close is done and thus, credit terms may get “skipped.” Or, even worse, business office managers may experience concern that a patient or client might decline services.
This is the critical first step! In order to lower A/R workloads, then start 60 or 90 days before – in sales department, or business office, as the case may be. This is a unique training opportunity and your first line of protection. How many times do we hear things like “I never saw that” or “That wasn’t what I was told”? Sure, there are people that choose not to listen –and there are sales people that aren’t comfortable. You can control one, you can’t control the other.
Herein is the main reason that we mentioned in last month’s blog that automating the payment process and the credit policy can help alleviate this. Depending on your type of business, by clearly providing customers with an automatic payment option, you can eliminate a whole lot of this pain. It is, after all, 2016 – people expect the option of having accounts drafted automatically. By using this method, and a well-written policy that reflects this method signed by the customer, you lessen the verbal jousting that may make a salesperson (or business office representative) uncomfortable and also protect your business in the event that a customer chooses to cease payment on a credit card. The agreement can be presented as proof and ensures that your recourse as a creditor is much more financially stable if you have firm and clear policies in place.
Another simple tip is, if your agreement is long and you want to be sure that nothing is overlooked, obtaining initials at individual bullet points detailing the credit terms, in addition to a full signature at the bottom of the agreement, is a good option.
Now, with that all stated, how can you effectively train accounts receivable staff? Make sure that the documentation is there for them! If your credit policies are in order, then they can deal much more effectively with clients. “Training” is more the result of knowledge and confidence, rather than the result of another classroom session with role playing. When you give them the tools to do the job – and at the same time you give the customer the tools to handle what they are asked to do, you’ll see that your late payments as a percentage of total receivables will begin to lessen.
As we shake off the fact that another year has come and gone, we’ve got to come out of the ether enough to realize that chances are really good that you’ve left some money on the table. No matter how good you think your procedures are, chances are, there are some easy ways to collect more of what you’ve provided (or sold) and still keep the customer happy.
How can you do that?
Well, for starters, how solid are your credit policies? All too often, companies fail to have effective policies in place detailing exactly what the policy is – or if they do, many times, that policy is outdated. With the revolution in internet systems, banking, and charges that has taken place in the last ten years, chances are, your credit terms and conditions have multiple holes in them. Sadly, too many times, especially in the service industries, chargebacks can’t be defended against because creditors don’t have – and make clear – what the rules are.
Additionally, creditors sometimes ask us to add collection fees that were not included in the original agreement that their patient or customer signed. However, to do so would be a violation of federal regulations. The clause stating these fees be paid by the consumer MUST be included in your original agreement with them.
Along these same lines are engaging software suites to handle accounts receivable. Even better? Making sure that the very same credit policies that we just mentioned are outlined and electronically signed by clients at the time of service. By deploying software in the credit strategy, you can make sure that there is a clear path that can be followed (automatically!) for your A/R personnel.
That exact type of automation can allow you to provide your customers with online and self-service options that can allow them to pay when it is convenient for them. Think about it – if you are only open to receive payment during business hours Monday –Friday, some folks simply cannot get to you! Of course, there is always “snail-mail” but depending on your volume, postage rates and printing costs can be daunting, plus there is no way to know for sure that the client even received the bill – and they still have to mail it back. (We know of at least one county in Georgia that automated the payment process on business taxes and saved $100,000 annually in postage alone!). Make it easy for your customers to pay you – via an online portal accessible anytime. Even something as mundane as a drop box can increase collections.
Now, one concept that seems sort of counter-intuitive is that when you have stronger policies and more automation, you simply have fewer accounts to manage. To put it bluntly – people pay more often when there is a clear path to payment and the expectations are managed. What can this mean? Honestly, less staffing in the accounts receivable department. Too many times, we see that companies “staff up” A/R departments as a solution to cure the wrong problem. Increase your staffing to develop the solution – not just to solve a problem.
Realistically, there will always be some people who are unwilling to pay … that’s a fact of doing business. When that time comes, experts in the field, like the debt collection specialists at Credit Service Company can help.
On the other hand, sometimes only a few minor tweaks can lead to big results for your company, so try deploying these as we ring in the new year – and look forward to seeing a positive difference in the new year!
We get questions from people trying to understand their credit score and wanting to know how they can work to improve it. Thanks to Lisa Smith at United Federal Credit Union, who supplied this information! Her concise explanation offers insight into understanding your credit score and how it can be improved. If you have any questions, call us at (479) 782-7236.
You are able to obtain a free credit report every 12 months from one of the three major credit reporting agencies. Their info is below:
P.O. Box 740241
Atlanta, GA 30374-0241
P.O. Box 2104 Allen, TX 75013-0949
Trans Union (www.transunion.com)
P.O. Box 1000 Chester, PA 19022
You can also get your report online at www.annualcreditreport.com