The Timely Collection of Accounts Receivable: Part II (Inquiry and Appeal)
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The Timely Collection of Accounts Receivable: Part II (Inquiry and Appeal)

The slow or delinquent payment by 30-to-40% of a sign shop’s customers can create problems.

By Mike Raymond

The slow or delinquent payment by 30-to-40% of a sign shop’s customers can create problems.

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  • First, it can cause a cash-flow problem. Slow payments essentially deny the sign shop access to its working capital and profit. Second, the efforts to collect the money due are time-consuming and expensive. Rather than doing the business of selling, designing, fabricating, and installing signs, the shop’s energy and resources are diverted to “give me my money.”

    The use of a standard collection series can improve the timely receipt of payment by your sign shop. A standard collection series has two main objectives: to collect the money owed as promptly as possible and to retain the goodwill of the customer.

    Fortunately, as described in the first article (“The Timely Collection of Accounts Receivable: Part I”), most collections are successfully accomplished in the first wave of the standard collection series: Notification and Reminder.

    However, when the Reminder stage doesn’t produce the money owed, a sign shop must move onto the second wave of the standard collection series. The second wave increases the force and the complexity of the collection strategy.

    The second wave usually involves the Inquiry and the Appeal stages in collection.

    THE INQUIRY STAGE

    After a shop has send Notification and then a number of Reminders, the assumption about the delayed payment must change. It is obvious the customer has not merely overlooked the debt.

    If the customer is a new client or a recognized risk, the shop should consider the possibilities that payment is in doubt and should assume that more persuasion and/or force should be used. In fact, depending on your level of anxiety, you may wish to move right into the Appeal, Urgency, or Ultimatum stages of collection.

    If the customer is a long-time client with a history of regular payment, the shop is best served if it assumes that unusual circumstances are the reason for the delayed payment. Because of the favorable business history, you want to err on the cautious, goodwill side with a long-time customer.

    The INQUIRY stage in the standard collection series is one letter. The letter is in the spirit of friendly understanding and helpfulness, and essentially asks for the money due or an explanation.

    Make no mistake: the primary goal is to get the money. However, an offer to consider the special circumstances and to help out a good customer can go a long way to cementing a long-term business relationship. For a valued client, understanding and goodwill are a wise investment.

    Do not even hint at the possibilities that your sign, services, or billing was flawed. Do not forget that you are in the second wave of the collection series. This reminder will keep you from slipping back to the Notification or Reminder when the delayed payment is some sort of oversight. Such an error gives the customer an “out” and just further delays payment. Once you are in the second wave of collection, stick to its assumptions.

    The focus of your persuasion is the acknowledgement of temporary difficulties, an offer of help, and the expression of understanding. But do not forget that the payment of the money owed is your primary interest.

    Consider the following letter as a sample of the Inquiry stage.

    Even though the Smithville Historical Society has not been receiving a series of collection notices and letters about your past due account, we at ABC Sign do expect you to pay it as soon as you can.

    Based on the Society’s very satisfactory five-year relationship with ABC Sign, we feel that something unexpected has created some difficulties for your group. Can we help you during this difficult time?

    In light of our excellent years working together, may we ask that you take one of the following actions? 1. If you possibly can, send us a check today for the full amount of $XXX for the YYY. 2. Send us a partial payment today and propose a schedule the Smithville Historical Society can follow to meet the rest of its obligation. 3. If the Society cannot make a significant partial payment, please let ABC Sign know what the trouble is, what we can do to help, and your proposed schedule for taking care of the account.

    To ensure that we can work together to ease your problems, please act on one of these three options as soon as you can.

    The first paragraph establishes the letter’s collection objective. The second paragraph affirms the tone of goodwill and prepares for the three options of solving their mutual problem—the debt. The third section lists the options. Note that the options are listed in the order of preference for the sign shop. The Inquiry letter concludes with an action ending: a reason for the customer to act, a call for an action, and an encouragement to act quickly.

    Depending on the customer, a definite deadline might have been given. The danger of a specific deadline, however, is to undercut the goodwill and helpful spirit of the letter.

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    THE APPEAL STAGE

    If a customer does not respond to the Inquiry Stage letter, the sign shop should assume the delinquent account is not an oversight and is not product of unusual temporary circumstances. The customer needs to be persuaded; the force of the collection process has to be increased.

    The Appeal Stage can range from one to a number of personalized letters. Of course, the goal is to collect the money due as inexpensively as possible. More letters cost more time and more money, and divert you from the business of making signs.

    To be persuasive, the Appeal letter usually must be individualized—or appear to be individualized. Obviously, the delinquent customer has not responded to the standard forms of Notification, Reminders, and Inquiry letter. An Appeal letter can be individualized from information in the credit records and the paperwork from the sign job.

    The Appeal letter should remain focused. Develop one or two points. Make that point emphatically. Pound the point. The point should be about the customer and the benefits to the customer if the delinquent account is paid.

    Generally, the most effective customer benefit is economic self-interest: getting something wanted or avoiding something not wanted. Basically, people want to have self-respect, the approval of others, and the ability to do things. On the other hand, people do not want to lose what they have or their ability to get more. This may include such things as money, property, and credit.

    While this stage in the standard collection series requires more force and the hint of threat, the idea of goodwill is not abandoned. The Appeal letter is firm, but not harsh. The idea is to collect the money and not to burn any bridges between your shop and the customer.

    The strategy for retaining goodwill while collecting the money is to “sell” the customer on the value of respect in the community, of good business practices, of accessible credit, and of a thriving business.

    Other appeals that can be used to persuade the customer to pay include the product re-sale strategy, the pride strategy, and the fair-play strategy. While not usually as effective as the economic self-interest appeal, each may be useful for a particular customer.

    The re-sale appeal points to the quality of the signs or the services your shop provided. The idea is to paint a vivid picture of your work so that the customer feels an obligation to pay for the good value that had been received months ago.

    The pride appeal is primarily psychological. Whether through praise, compliments, or challenge, the letter focuses on the customer’s reputation. It encourages the debtor to take action—pay the money owed—that he can be proud of. It also implies the need to avoid behavior—not paying—that would prove embarrassing.

    The fair-play appeal depends on the idea of the sanctity of contract. The customer gave his word, got his sign, and should carry out his part of the deal. Fair play requires that the customer be honest, have integrity, and cooperate by paying what is owed. A promise is a promise.

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    Clearly the re-sale, the pride, and the fair-play appeals will not work on most delinquent customers, but some of your clients might be moved by their basic humanistic approach. For those more certain that the sign business is a struggle for survival, the economic self-interest may be the strategy for their Appeal letter in the collection process.

    Consider adapting the following Appeal letter for your collection needs.

    Why is a prompt-pay rating like money in the bank? Both are able to command products and services immediately when a business such as yours wants them.

    On the basis of your ability to pay and your reputation for making payments on time, ABC Sign extended credit immediately when you requested it. Now we ask that you send us a check for $XXX to cover the fabrication and installation of the neon signs for Kearney Bagel last August.

    The enclosed brochure displays the array of signs and sign services available at ABC Sign. Notice in particular the range of sizes and designs in banners. Banners offer an excellent vehicle for attracting attention and for advertising temporary specials that Kearney Bagel might feature.

    Should you care to order some banners or other signs on ABC Sign’s regular terms, enclose a check of $XXX covering your balance. By clearing your account, you can use your credit as if it were another check drawn on money in the bank.

    This Appeal letter opens with the generic customer benefit of doing a credit-based business (economic self-interest appeal). However, the third paragraph makes it clear that this is a collection letter. Note, however, that the focus is on the original agreement, not on the apparently broken agreement (fair-play appeal).

    The fourth paragraph suggests the sign shop’s willingness to do business in the future with the bagel shop (sales appeal). It encloses a brochure and gives specific advice on the value of banners for the bagel business (economic self-interest). Note how the letter uses the names of the sign shop and the bagel shop: this tactic shows that it is not a form letter and implies that the bagel shop is recognized as a special customer.

    The last paragraph uses the banner sales appeal as motivation for sending the money owed. To get more business through banners, pay the bill for the neon signs. It is also an action ending: it offers a reason for acting; it tells what to do, it identifies how much to send; it ends with a return to the generic customer benefit of doing a credit-based business.

    An overall strategy in this sample Appeal letter is its unity. Throughout the letter, the idea of success by doing business through credit is developed. The letter is unified and focused by keeping to one point—the point that by paying the sign shop the customer will be a business of good standing that has credit.

    Believe it or not, occasionally the Inquiry and the Appeal Stages of the standard collection series do not motivate sign customers to pay.

    The last wave is the Urgency and the Ultimatum stages. The last stages of collection require a serious turn in the tone and strategies. At these stages, a very real likelihood exists that the shop will not collect its money. Force now overshadows goodwill. Getting near the end of the collection series, the prospect of “last chance” is painted. The squeeze is on.

    The next issue of signindustry.com will focus on the third and last wave of the standard collection series.

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