The Ideal Collection Letter
Albany Ladder's Jim Ullery shows how he gets late payers to send in their money* * *
A sale is not a sale, goes the saying, until you collect the money. Which means that all too much of the selling "done" today will in fact remain undone a month from now.
In 1989, the most recent year for which figures are available, 6,000 U.S. collection agencies chased unpaid bills totaling $72.3 billion. (The sum of all past-due accounts receivable, most of which aren't handed to agencies, is much higher.) They recovered $13.3 billion -- or 18% -- and after skimming an average fee of 34% of the amount collected, they passed along $8.8 billion to their clients. The upshot? Send an agency after a dollar you're owed and you can expect to get 12¢ of it back. The moral? Collecting is hard, but it pays to do it on your own. And it pays to be good at it.
Jim Ullery, customer financial services manager at Albany Ladder, in Albany, N.Y., knows that. A $23-million construction-equipment and -supply company, Albany Ladder specializes in serving carpenters, roofers, and small-time contractors who've never borrowed money from a bank -- much less established a history of responsibly repaying it. Still, Ullery and his colleagues deliberately extend credit early and often; it's pivotal to the company's drive for market share. As a result, he's had to learn how to collect debts early and often, too. "We have to be aggressive for our credit policy to work," he says.
Ullery offers two secrets to successful collecting: First, recognize that it's a process, not a one-step demand. Albany Ladder pursues debtors with a program of phone calls, notes, letters, negotiations, and, if necessary, legal maneuvers. Second -- and most important, in Ullery's view -- learn to empathize. "Collectors fail to remember that when we make the decision to give customers money, we're buying into it," he says. "We really become a cosigner. So now my role in collecting is to help."
Here's one of Albany's first appeals to a late-paying customer: "If we are to help you, fairness requires that you must help us. . . . By pulling together, we can help each other through this period of temporary difficulty. The first thing we must do is reach a clear understanding."
"I really want to know why they can't pay," Ullery says. "Undercapitalization, losses, sometimes even sales increases -- there could be lots of reasons.
"The debtor's got to know I want to talk. I love it when people say they don't have the money. If they'll humble themselves and admit that's why they can't pay, that's OK. We'll work with them."
Diligence and empathy have so far served Ullery well. Albany Ladder's bad-debt write-offs stand at about 1% of sales -- very low, considering the company's risky generosity with credit.
Below, with notes, is one of the most successful letters from Albany Ladder's collection program.* * *
Dear Mr. Debtor 1:
RE: PAST DUE BALANCE: $4,656.32
In a very few days now our accounts are due for audit and decisions must be made on those that are seriously past due. 2
As you might imagine, the choice whether or not to place an account with our collection agency is one which we weigh with a good deal of care -- especially in your case.
Your goodwill, after all, has always been important to us: that is why we are reluctant now to take any action which might jeopardize your credit standing and cause you embarrassment or added expense. Our contract stipulates that you will be responsible for collection and legal fees. 3
Yet, I think you will agree our position is a fair one: we have been happy to extend you credit based on
your promise to pay 4 according to our terms. Since then, we have contacted you numerous times without response, and now we must consider the possibility of placing your account with out collection agents or a law firm.
Still, I am hopeful that you will act promptly and forward us your check IN FULL IMMEDIATELY. 5 That is why I am going to suspend further action until March 15, 1991.
It is important, however, that I hear from you by then. Otherwise, a decision must be made that I am sure neither of us wants.
Very truly yours , 6
ALBANY LADDER COMPANY, INC.Jim UlleryCustomer Financial Services Manager
File No. 12340 7* * *
1. This is a customized letter, not one of the computer-generated mailings that have become a staple of collection departments. ("Nothing's worse than 'Dear customer' or 'Dear accounts payable supervisor,' " says Ullery.) The letter counts money and names names right at the top. And at this point, Ullery believes, the name being fingered should be the owner's or the CEO's. "It's his cash, it's his reputation, and, more often than not with us, it's his personal guarantee. I want it clear I'm talking to him."
2. On average, unpaid bills handed over to collection agencies are already six months old -- much too old, says professional collector Joseph Saunders, to offer decent odds of recovery. "Even 120 days is too old," he says. Ullery agrees. This letter goes out 60 days after the sale. By this point, Albany Ladder would have contacted this customer three or four times, by both mail and telephone, beginning on the 35th day. How does Ullery send this appeal? Usually by return-receipt-requested certified mail and regular mail. Occasionally, when such a letter is not accepted and signed for, Ullery will put it in a plain envelope addressed in pencil by his daughter, who's five. Why? So it doesn't look like a dunning notice and gets opened. "You'd be amazed at how many debtors ignore their mail," he says, "so they can honestly say that to their knowledge, they never heard from you."
3. Tone and accuracy are key. "This paragraph appeals to the customer's valued reputation and tries to maintain the vendor relationship Albany Ladder has with them," Ullery says. "It shows respect and empathy. There's a lot of ego at risk, and I don't want this to become a slap in the face. The letter should be courteous, somewhat conversational, and -- most of all -- correct. Don't send it if you're not owed exactly what you say you are. I hate collection letters that say, 'If your check has already been sent, ignore this mailing.' That's terrible. The debtor will rely on that line and say, 'Well, we regularly send payments, so this payment has most certainly crossed in the mail.' It becomes the out."
4. The appeal to honor. "Don't dance around the debtor's commitment to pay," says Ullery. "Remind him he's made a promise. There's integrity at stake here, though too many business educators say otherwise. I have an ongoing beef with a professor at Texas A&M who teaches that you shouldn't pay your 30-day bills until you get your first collection letter. He says if you're contacted at 72 days, then pay them on the 69th day from then on because that's inside their cycle, and then you'll have use of the vendor's money for an extra 39 days. Well, that's wrong. And if you convince a debtor that that's how you see it -- an integrity issue in which nobody's playing games, nobody's winking -- he'll start to take you seriously." To lay better groundwork for this appeal, Albany Ladder is revising its credit application to feature three direct questions: Our terms are net 30 days; will you be able to meet these terms, yes or no? Are you financially solvent, yes or no? Do you agree to tell us if you ever become unable to pay us on time, yes or no? Says Ullery: "Forget credit references; they're not useful. I want people to think about the promise."
5. I mean it, is what Ullery is saying here. "You need to create a sense of urgency." Also to make a demand. "I'm after the money in full now," Ullery says. "If we're not going to talk, then this is the beginning of the demand phase in the collection process. If they'll work with me and honor their commitments, then I'll make a payment schedule they wouldn't believe. Otherwise, we want it all. Now." As civil and empathetic as this letter is, the demand is frank and unequivocal; its manner improves Albany Ladder's chances of success if litigation is called for later.
6. I mean this, too. The overall feel of the letter should persuade the debtor of Albany Ladder's sincerity and good wishes. "I'm a sales agent for the company. I want a customer who is happy with our products and service. One of the greatest places to create a market is with those people who stuck you in the past but have viable businesses now. If you cared about them, they'll remember. And when they finally reach their growth phase, they'll want to pay you back, to show you they've made good. You'll never have a more loyal customer."
7. And what will be the outcome of file no. 12340? In general, upon receipt of this letter a month after the bill was due, some 25% of Ullery's customers will pay in full. Another 30% will work out a repayment plan. And another 35% will go deeper into the collection process before finally coming to terms. Still, despite Albany Ladder's ardent and clever pursuit, as many as 10% of this letter's recipients will never pay.* * *