The Collection Manager And His Work
( Originally Published 1918 )
Credits and Collections
Specialization has been forced upon the business man by the increasing complexities of present-day business problems. To do business on a large scale—sometimes, indeed, on any scale—credit must be given. As a matter of fact, 95 per cent of the business of the country is done on credit; and for this reason any business of magnitude must have departments for credits and collections, and in both these departments must be men of special skill in the work.
It has been said that collections should be made in the credit department; and, in fact, the two departments of credits and collections are so closely allied that it is hardly possible to separate them. It has also been said that if a credit man could be found who was infallible there would be no need of a collection department. But the perfect credit man has yet to be discovered, and in the average business collecting is a dire necessity. No matter how careful the credit department, a mistake will occasionally occur, or conditions will change after a credit is granted, or misrepresentations will secure a credit that should never have been given, and in any such case careful collecting is necessary to save the account.
The importance of a proper system of collecting can hardly be overestimated. It is worse than useless to sell goods unless these goods are paid for. The credit man can do much to insure payment, but upon the collection department falls the burden of seeing that payment is actually made.
Generally speaking, collecting should be close. When money is due it should be paid. Many debtors think that if they pay interest on their accounts the concern with which they are doing business should be willing to carry them indefinitely. When, however, it is taken into consideration that a business can and should make from 10 to 20 per cent or more on the cash capital employed, it is clear that 6 per cent from a customer is not an adequate consideration for carrying the account. Nor does the ordinary mercantile concern desire to engage in the business of loaning money. The debtor should go to the bank if he wishes such accommodation.
Among the many advantages of close collecting is the obvious fact that the money is better employed in discounting bills, which means to many concerns a yearly saving of thousands of dollars, than in carrying overdue accounts. Buy right, discount bills, and it is easy to sell at a profit. But, unless the merchant has unusually ample capital, it is impossible for him to discount his bills unless his accounts are closely collected. A good system of collecting, rightly managed, is the equivalent of increased capital, and it is the lack of capital which causes no less than 32 per cent of all business failures.
Also, close collecting helps to retain good-will. A man who sustains large losses yearly because of failure to collect must charge a higher price for his goods in order to show a profit. The wise buyer is fully aware of this fact, and has much more confidence in, and is a great deal more willing to do business with, a man who insists on his money when it is due. Also close collecting often increases sales, for a delinquent debtor hesitates to add to a past-due account, even when this is permitted, and places his next order with the house which has compelled him to keep a clean slate. To be sure, collections, and particularly close collections, must be handled with tact and judgment; but these are merely the ordinary qualifications of a successful collection manager. If the accounts are properly handled, the "worth while" customers will not object to close collections—in fact, as soon as they understand that this is the rule and the custom of the concern, they will cheerfully fall into line, and will, as a mere matter of course, pay when payment is due.
This is true for the most part, but some men will always be found who can pay if they must, but who will not pay if they can avoid payment, and, if they must pay, will postpone the evil day to the uttermost. For this reason "keeping everlastingly at it" is necessary to success in the collection department. No account is uncollectible until the debtor has passed through bankruptcy, has died without leaving assets, has left the country, or has avoided payment until the account is outlawed—and even then the good collection manager does not entirely despair.
The system of selling on conditional sales and chattel mortgage has introduced a new element into the collection business. The credit man is not so necessary here, as the title to the goods does not pass to the purchaser until the entire amount is paid; but after the conditional sale is consummated, a man of judgment and great perseverance is needed, to follow the transaction until payment has been made in full. Much of the success of the instalment business depends on the activity and ability of the collection department. It is here that the collection manager has the fullest opportunity for the display of his talents.
The Collection System
The collection system installed must depend somewhat on the nature of the business. Once installed, however, it should be strictly adhered to—unless defects show them-selves in practice—and be carried out in detail. It is by the use of system that the thousands of accounts of an active business are followed and brought to the attention of the collection manager at the proper time without thought or effort on his part. The many details of collection under a good system can be largely handled by assistants, who merely follow instructions, the chief requirement being accuracy in their work.
The Collection Manager
The collection manager may be an independent official; he is frequently one and the same as the credit man; often he and the bookkeeper are one; but whoever or whatever he may be, he occupies a position of the greatest importance. He is expected to produce definite daily results—results in hard, cold cash, which are necessary for the welfare of the business. If he does not produce these results in some measure, a successor will very promptly usurp his position, or his concern will go into bankruptcy.
For the highest success the collection manager must be a man of experience and trained ability. Beyond this, he must be thoroughly interested in his work. This is a prime requisite, without which there can be no lasting success.
Another essential of the successful collection manager —and of the credit man as well—is the ability to judge of human nature. This is a qualification which can be acquired. If the power were perfectly developed, the science of collections and credits would be an exact one. It is found in its highest efficiency in the man of large experience, whose judgment, based on natural ability, has been broadened and matured by actual service in the field of business. In granting credit too much reliance must not, however, be placed on unsupported judgment of human nature. Nor must appearances be given too much weight, for appearances are sometimes very deceptive, and facts and figures—certified by a public accountant where the matter is important—are a better basis for credit than fine feathers or plausible manners.
Courtesy is another most important qualification of the collection manager—a qualification which anyone can acquire, and for the lack of which there is no excuse. This does not mean that a collector must accept any excuse, or fail to press his claims properly, or weaken in any way in his fair demand, but merely that courtesy must control, no matter how particular conditions are handled.
Sometimes harshness, threats, and an overbearing manner are necessary; but these tactics are always dangerous unless the collector is absolutely sure of his ground. To use such methods arouses the antagonism and opposition of the delinquent, and may drive him away, when other-wise a settlement or satisfactory understanding might have been reached. On the other hand, though the rule is far from infallible, many a debtor has been shamed into making payment simply by courtesy and gentlemanly treatment. The good manager is courteous but firm. He collects closely and clean, but in doing so makes the debtor—now a debtor no longer—his friend, and the friend of his concern. The driving away of customers by improper collection methods is an offense quite sufficient in itself to classify the collection manager as unfit for his position.
The capable collection manager should possess sympathy and imagination. If he shows an interest in the troubles of the debtor, wins his confidence, and gets him to talking, much valuable information may be obtained which may lead directly to the payment of the claim. Where this information is not so directly available, it is frequently true that the collection manager, by placing himself in the debtor's position, and utilizing his own experience of the collection business and his knowledge of the many methods by which payments are made, may be able to suggest a way in which the debtor can meet his obligation. Sympathy must not, of course, be allowed to degenerate into weakness, nor imagination be allowed to warp judgment, but, properly employed, both these are legitimate and valuable aids in collecting.
Two of the most important virtues for the collection manager are patience and persistence. If not inborn, these must be cultivated, for without them there can be no real success in collecting. The delinquent debtor must be persistently followed, but with patience where patience is necessary. Though rather difficult for the average impulsive American, the collection manager must on occasion be willing to wait quietly for developments. Many an account has been lost through quick, hot-headed action. On the other hand, many accounts actually charged off to profit and loss have been turned into money by patience and persistence on the part of the collection manager.
The collection manager must always bear in mind that financial conditions of individuals, as well as of nations, change with the passage of time, and that the debtor whose bill is uncollectible at one time may be entirely able to pay at another later time. When this time comes, if the debtor knows that the collector is still after him, he will usually settle voluntarily, or, if the account is not outlawed, may be forced to settle by means of legal process. Long-drawn-out accounts of this nature may be charged to Suspense Account or can be written off the books entirely and transferred to a "Doubtful Accounts Ledger" if it is thought best that they should not appear as an asset of the business. To charge off annually a certain percentage, depending on the line of business, or to establish a reserve for bad debts, is a safe precaution.
The Collection Manager's Training
So much for the more important qualifications of the collection manager. Now as to the training necessary for the most effective work. The most important is perhaps business experience. The more he has of this, the better.
No really capable man thinks that he knows it all. For the collection manager—as with every other business man —it is "live and learn," and he never gets too old to learn something new about his business. This experience must, as a rule, be attained in subordinate positions. The business man has no time to train his collection manager, who must, therefore, come to his work equipped and capable, so that collections can be kept up from the first.
A good knowledge of bookkeeping is most desirable. The collection manager need not be an expert accountant, but he will find a good working knowledge of accounts invaluable. The collection system itself will require the application of many accounting principles, and situations will frequently arise where it is advantageous or even necessary for the collection manager to have a sufficient understanding of accounts to draw proper deductions from balance sheets and statements. At times he can seek the co-operation of the accounting department for solution of the problems which confront him, but he can-not always depend upon this, and should have at least a fair knowledge of accounting in order to handle his work intelligently, and, when he must, independently.
The ability to write a good collection letter is almost essential. In some cases collections are made in person and the collection letter does not enter in at all; but in the great majority of cases the collection manager must do a large part, if not all, of his collecting by mail; and then the ability to write a good collection letter cannot be over-estimated. In fact, it then becomes the collection manager's most necessary qualification. The subject of collection letters is treated in detail in Chapters of the present volume.
The collection manager should have a good working knowledge of office system. His own department should be carefully systematized, and it is advantageous for him to have an insight into the general office system of the concern he is with, so that he may know what information is available, and, when he wants it, know how to get this information easily and quickly. This promotes the work of the collection department and increases its efficiency.
The collection manager need not be an attorney, but he should possess a good practical knowledge of commercial law. He must know the laws which apply to sales, to debts, and to collections in the states in which he works. He must know what his legal rights are and how to enforce them when necessary. He must know just how far he can go in forcing payment; and he will also find his legal knowledge of much assistance in the adjustment of claims. Speaking generally, he must be sufficiently familiar with the law to keep out of trouble, to know when it is absolutely necessary to employ an attorney, and to know just what is to be expected—as to expenses and as to results—when an attorney is employed. The most important legal remedies are pointed out in Chapter xvi of the present volume, "Legal Phases of Collecting."
Ability in adjusting claims is at times an important qualification for the collection manager. Frequently it is a question of salvage—how much can be secured and what procedure will produce the best results. The most successful collection lawyers of today advise their clients to settle out of court whenever reasonably possible; and the advice is good for the collection manager. A settlement out of court is much more profitable to all concerned; and the good-will of the debtor, which is so important for future business, can be retained. The collection manager who is able to settle his cases on a reasonable basis out of court will be much more highly esteemed by his house than he who has many lawsuits on his hands.
Conditions of the Collection Manager's Work
The collection manager must make a close analysis of the particular business of his concern and of the conditions under which it is conducted. While collecting is much the same in all kinds of business, there are frequently peculiar conditions—either in the business or among the people to whom sales are made—which will require special treatment. It is obvious that a business selling on the instalment plan, with numerous small payments, requires a method of collection quite different from that of a business in which the sales are large and the terms of payment to some extent in the discretion of the purchaser.
The collection manager must also make a careful study of the general conditions under which he works—the policy of the house—the scope of his authority—his relations with the credit department and the selling force —any special credit concessions to particular customers or on particular lines. Also, he must possess almost as thorough a knowledge of the goods handled as do the salesmen themselves, so that he may understand complaints, smooth over difficulties, meet objections, and avoid unnecessary friction arising from returns of goods and delays in payment.
When the collection manager has done all this—when he has acquired the experience and the general and special qualifications discussed—when he understands the general requirements of collecting—when he has a thorough knowledge of the requirements of his particular business —he may still find his work difficult, but he will also find it important, interesting and pleasant, and his success a matter of course.