Collecting past-dues can be a bit of a guessing game. Throw a natural disaster into the mix such as a hurricane, tornado or derecho, and collecting cash becomes even more difficult. The pandemic, however, has created more obstacles for debt collection compared with other more common disasters because of its simultaneous reach worldwide, said Matthew Jameson, attorney at Jameson and Dunagan (Dallas, TX).
When it comes to natural disasters, “the question always is ‘What do you do after a whole area has been wiped out?’” Jameson said. “With COVID, it’s not just one area; it’s the entire world.” Because the economic impact has been widespread, it forces creditors to change the way they go about getting cash from customers.
For example, credit professionals should think of collection calls differently. Instead of an aggressive where-is-my-money approach, focus more on the personal relationship with your customers, Jameson said. “Traditional collection calls are not going to work because this has affected everyone going on 18 months now,” he added. “It’s more about just touching base and cementing your relationships; being firm about payment but also being sensitive to the economic impact caused by COVID.”
Being too cold toward debtors could drive customers to competitors, Jameson explained. Showing some sympathy goes a long way when it comes to debt collection after any type of disaster, not just the pandemic. “Put yourself in your customers shoes,” he said during a Credit Congress session, Collection Strategies After a Natural Disaster. “You can’t predict these disasters; you have no idea when they’re going to hit, but you can put yourself in the best possible position by preparing.”
Credit professionals might not be fortune tellers, but doing some leg work before disasters strike is key to protect your company, Jameson added. “Creditors should make sure they have policies and procedures in place to protect themselves and make sure they are taking advantage of all potential lien and bond claims on construction projects.”
Some other pro-active best practices Jameson recommended for credit departments to follow in case of future disasters include:
Keeping an organized credit department.
Implementing a clear course of action for late payments.
Establishing a credit standard that describes the profile for an acceptable credit customer.
Creating a strong credit application document for new customers and verify information.
Obtaining a personal guaranty.
Using promissory notes when you have a reached a settlement with a customer before filing a lawsuit.
Being proactive in placing accounts for collection.
Now that you know ways to increase your chance of payment before a disaster hits, what are your options to get paid right now? Try to negotiate and offer discounts for immediate payment of past due invoices, Jameson said. “You may be taking less, but it will help in a situation where you need money now to help keep the doors to your business open.” This will not work as a blanket solution for all customers, but he said it works best for problem accounts.
One of the last options is filing a lawsuit; the legal world is moving at a “snail’s pace,” Jameson said. However, “a lawsuit may be enough to get someone’s attention so you can get your payment.”
Be sure to register for Jameson’s session at the 2021 Credit Congress, Turning Your AR into Cash After a Pandemic, to learn more about this topic.
This article first appeared in the Sept. 16 issue of e-news. It is used with permission.