The Check is in the Mail and Other Humbug

This blog post is about putting your collection efforts on steroids, converting your accounts receivable into cash in the bank…quickly.

PROBLEM:  In today’s business world, most confrontational collection methods don’t work. Litigation is very expensive, and many debtors know that creditors won’t sue to collect on relatively small amounts. Collection agencies will send out a few threatening letters, but if the going looks tough and  the amount is too small, they’ll look for greener pastures in the form of large accounts and more easily intimidated debtors. What then to do?

The best solution is to collect it yourself — by using techniques that get people to want to pay. There’s a natural resistance that governs bill-paying.  But there’s also a way to capitalize on that resistance through the use of “power phrases” that turn the debtor’s mental inertia into momentum that insures a prompt payment.

I learned the most powerful of these semantic collection agents from my mother, when she discovered a five-word phrase that saved my father’s ailing carpet store. In the floor-covering business, carpet is delivered on one day and installed the next.  The biggest problem a seller faces is getting payment on delivery — and before installation.  If the check isn’t collected before the carpet is cut up and tacked down, the delinquent customer has a decided advantage; you the merchant can’t repossess the carpeting.  It’s been rendered virtually useless to anyone but the buyer–unlike a car, television set, or refrigerator, which can be repossessed and resold.

Once the carpet is down, it’s easy for the customer to find imaginary flaws and demand either a hefty discount or refuse to pay anything.  The time and money needed to collect can cripple or destroy a business. That’s what happened to my father’s store, Carpet Bizar, in Paramus, New Jersey.

Delinquent customers had sliced into profits, and forced my dad to lay off most of his office staff.  My mother was recruited to replace the bookkeeping department we could no longer afford. Part of my mother’s job involved calling up customers to arrange for delivery and payment.  She knew that many customers weren’t coming up with the cash on delivery, and she sensed reluctance on the part of many customers to agree to the C.O.D. terms.  She knew that failure to pay on delivery was the reason for our family’s financial troubles.  So she thought about the problem for a while and then came up with a brilliant inspiration.  Her next phone call went something like this.

“Hello, Mrs. Kingston.  This is Audrey Bizar, and I’m calling from Carpet Bizar about the carpets you’ve ordered for your home.  I just wanted to let you know that our delivery truck will be by with the carpet Tuesday afternoon at two.”  And then she added this sentence: “And of course you know, payment is required in full on delivery.” From the first day she added that sentence; delinquent payments became a thing of the past.

The potent words are “and of course you know.” No one wants to be thought ignorant.  You can almost imagine the thoughts in the mind of the customer.  “This woman is telling me I know something.  Hmmm, maybe I do. Even if I don’t, what she’s saying seems reasonable.”  And so the customer agrees.

Most people are actually fearful to take the mental initiative in such a situation and say, “No, I didn’t know.” Besides, the policy has been laid out as a fact of business life.  Agreement becomes easy, and the customer’s mental inertia has been turned around in your favor.

From the moment my mother discovered that phrase, our carpeting business improved.  Every single order was paid on delivery, and with virtually no resistance. But what if the goods have already been delivered and payment is now overdue?  The problem is now one of collecting the receivable.

“And of course you know” can still be a potent tool. “Mr. Jones, we have a bill outstanding from your company which is past due.  And of course you know payment on our invoices is due within 30 days.  The purpose of my call is to determine when we can expect payment.”

Here our caller is using two power keys.  “And of course you know” implies the debtor’s knowledge of your credit policy.  The word “when” takes the process one step further, by invoking a principle called assumed consent.  The question has become not if he’ll pay, but when.  To resist this call requires the debtor to admit both ignorance and intent not to pay.

Once you’ve extracted a commitment to pay, it’s important to carry the collection process to its final stage, getting a commitment to pay by a specific date.  Once you’ve obtained this promise, you’ve made your debtor agree to a specific performance agreement.  It’s very difficult for a debtor to renege once a firm promise has been given.

Another simple but powerful phrase is “That seems fair, doesn’t it?”  The mental leverage here lies in another simple aspect of human nature.  Most of us don’t want to be thought of as unfair.

Take the case of a customer who’s resisting payment by claiming a defect or fault with the merchandise. One approach is to call the customer and determine precisely what the claim is.  Next, follow through to see if the claim has merit.  If you find merit, offer a nominal solution:  give a minor discount.

Here’s how to make the offer — and collect: “Ms. Johnson, we’ve evaluated your claim and agree that an adjustment on your bill is in order.  If you send in your check today for X dollars (most of the amount), we’ll consider the bill paid-in-full.  That seems fair, doesn’t it?”

Again, you’re turning the customer’s inertia in your favor.  You’ve listened to the complaint and made a fair offer; and your customer doesn’t want to seem unfair.

Now, what do you do in the most extreme cases – when payment is way past due, or the check you received is no good? Many businesspersons handle these situations by threat: Pay up or else!  The only problem is that intimidation turns your debtor into an enemy – an enemy who may well know that you’ll never incur the substantial costs of litigation in order to recover a relatively small debt.

What can you do to turn this situation around?  Use the power phrases in a way that turns your potential enemy into a friend. Here’s how I’ve handled such cases. First, express sympathy for your debtor’s plight.  If you’ve been given a bad check, they’re probably already feeling bad about it. Second, let your debtor know that you know payment is intended. Third, ask, “How do you suggest we work it out?”  This gives your debtor a sense of control over events which before had seemed totally out of control.  By winning your debtor’s sympathy and recognizing his or her basic honesty, you’ve restored their sense of self-esteem.  Now you’re in a much better position to collect.

Typically, I would handle this situation in a call that sounded like this: “I understand how tight cash is right now; I’m having problems myself.  I know you intend to make good on your check, too.  How do you suggest we work it out?”

Then, if the debtor comes up with no specific plan, I would come up with one myself. “Why don’t we break up the payments over a period of time — say twenty-five percent a week?  That seems fair, doesn’t it?”  With this approach, I’ve not only avoided the costs of litigation, but I’ve managed to keep a potentially good customer who will remember my consideration and sympathy long after he or she has regained solvency.

There are other phrases that work, too.  The simplest are the two-word questions: “Wouldn’t you?,” “Shouldn’t you?,” and “Couldn’t you?  Here’s how these can be used: Your customer complains that business revenues have sharply reduced her cash flow.  You’re one of several creditors, and there’s no way your debtor can pay the full amount of her bill in one check.  The only recourse is to work out a payment schedule.  You negotiate and arrive at a schedule you know is equitable — and now you want to get your debtor’s agreement.  What do you say? “That sounds like an amount you could handle, couldn’t you?”

The principle is basic.  You find the semantic directives that turn your debtor’s reluctance into agreement. These powerful cues are introductory phrases, words that create a mental preset inclined toward agreement.  One of the most basic is “I think you’ll agree that…” which is followed up by your request.

Another tactic is the personal promise:  “Now Mr. Alger, can I count on you to send the check by October 1st?” Here the commitment is being made to you, the individual, and not a company.  It’s even harder to break a personal promise.

There’s another strategy for collecting overdue bills, one that shouldn’t be used except in unusual circumstances. You turn your debtor into an ally by dealing from a position of admitted weakness. An often cited textbook classic example of this technique occurred between Egypt and Israel during their historic Six-Day War. During that confrontation, both sides won military and political support by openly pleading their weaknesses.  Israel portrayed itself as a tiny nation, surrounded by overwhelming numbers of hostile Arabs.  “We are on the brink of annihilation,” the Israelis pleaded. Egypt, similarly, held itself out as a nation ill prepared for war, overburdened by economic problems and fighting for survival with a poorly trained army equipped with outmoded weapons.

Neither side sought help from a position of strength. Neither side demanded help – they simply painted a picture of the dire consequences which would occur if assistance wasn’t given. Allies were created through sympathy, not force.  In reality, Israel had what may have been the world’s finest military machine, and Egypt had a massive land army equipped with the latest Soviet weaponry.  Nonetheless, by parading their weaknesses, each side won allies as well as valuable military and financial support, both during and after the war.

The same strategy can be applied sparingly by small businesses in collecting receivables. Often, coming on strong is the best way not to collect. “If you don’t pay within ten days, I’ll sue you!” may win the response, “So, go ahead and sue.”  The same is true of threats to involve collection agencies. On the other hand, an appeal from weakness can recruit an ally.  Here, a key phrase is “I really need your help.”

If you’re going to use this approach, be sure you really do need your debtor’s help.  Otherwise you can lose both respect and credibility. But if your cash flow problems are real and your short-term cash needs are critical, here’s an approach that usually works: “Mrs. Kelly, I know you’re having problems.  I can really appreciate that, because I am too.  I’m calling because unless I have your check by 10 a.m. Friday, I’m not sure I can meet my payroll.  I really need your help.”

Here you’re asking your debtor to become an ally, to help not just you, but your employees.  The debt is no longer an abstract quantity, but a real need for real people.  You’ve attracted sympathy, and now you stand a good chance of collecting. When appealing for sympathy, harsh or strident tones won’t work.  Your voice must be natural, soft, even somber.  You have to convey a genuine sense of urgency. And again, get a firm commitment to pay by a specific date. Finish with the phrase, “Thanks, I’m counting on you.”

Another potent collecting strategy is one I call the “Fatal Choice.”  Here again you don’t ask your debtor if he or she will do something; rather, you present two choices — both favorable to you — and let the debtor choose. For example, “Would it be more convenient for you to pay this in full today, or to spread it out in payments of “X” dollars a week over the next “Y” weeks?” You’ve mobilized the inertia to move in one of two directions, either of which is perfectly acceptable to you. It’s not really a deceitful tactic, because the alternatives recognize one fact of the situation as a given; your debtor does owe you the money.  You’re simply giving choices of payment to make the collection as painless as possible for them.

There are many power phrases. You can find ones that work equally well for you.  But they all work the same way. You make your collection by converting your debtor’s initial resistance into your own momentum for payment through the use of semantic cues.

Now that makes sense, doesn’t it?