Thursday, August 29, 2013

Deduct Debtors By Using Automatic Deductions

Collecting on delinquent accounts helps achieve full profitability. But collections can be emotionally difficult for the small to midsize retailer, who often has developed warm relationships with patrons. To ease the difficulty, gain customer acceptance for automatic deductions as a payment alternative.
     A recent Bloomberg Businessweek “Smart Answers” posting began with a help request from owners of a private preschool where many parents hadn’t kept up with payments. The experts’ suggestions included setting up a line of credit at a bank to cushion fluctuations in accounts receivable, requiring advance deposits, and offering an incentive for authorizing monthly debits from the client’s bank account or monthly charges to the client’s credit card.
     As the posting says, because of the regular use of automatic deductions, there is increasing acceptance among both retailers and consumers. I’ll add three consumer psychology tips for maximizing consumer acceptance:
  • Provide for the shopper payment alternatives to the automatic deductions. Consumers are more likely to agree when they sense they have a choice. Making a substantial advance deposit could be one alternative. Short-term contracts could be another. 
  • Have the customers feel like part of a community. This stimulates a mindset of supporting the enterprise. The enrollment procedures and any participant materials should clearly refer to the customer as a “member.” Have staff regularly thank the customer for being a member. If the member has signed up for a limited-time enrollment, the feeling of companionship becomes especially important as the renewal date approaches. When the members feel part of a network, they’re less likely to drop out of participation and their financial obligations. 
  • Assign one billing contact. In a preschool, a health club, or similar retailing, the warm relationship with the customer builds business. It’s also useful for the circumstances in which a delinquent customer might want to come back in the future when she’s financially able. If one staff member handles the contracts and invoices, it’s easier for the other staff to maintain the warmth in the face of sour debts. 
     A business caution regarding that last one: Even though you centralize the billing contact, be sure the contracts, invoices, payments, and collection activity are audited by others. Check that everyone’s adhering to strict financial control systems. In one instance I know about, the owner’s daughter embezzled money out of the business to the tune of $750,000.
     Real bumpy family reunions from that point on, I’d think.

Click below for more: 
React When Faced with Reactance 
Kick Out Customers Using a Welcome 
Prolong Opportunities for Family-Owned Stores

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