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Check out our informative articles below!

 

Maximizing Your Residential Collection Efforts

For most waste companies, managing the collection of receivables from a residential subscription base is at best a continuing challenge. Accounts number in the thousands and they hardly seem worth the trouble on a case by case basis, given the relatively small amounts involved.

No matter how many people you have making the calls, the work is never really done adequately. Manual shut off for delinquent accounts never happens fast enough to catch up with pickup operations. And sometimes, turning over thousands of dollars of uncollected balances to a collection agency is like throwing money at the problem with only the vague hope that 50% of it will somehow float back into your bank account.

First and foremost, do not take this area lightly. I have seen companies go out of business simply because they did not have this aspect of their operation in order. I cannot stress enough the importance of the timeliness of the billing, suspension and collection notices. Timeliness is the most important factor of the successful collection process.

If your information system cannot perform the functions in this document, it is probably costing your company tens of thousands of dollars each year. Stop giving your revenue and profits away to your customers; get a good information system. If you have a customer base of more than 30,000 subscriptions, you can easily justify a new software system with the increase in collection revenue and decrease in staff needed to work collections.

Begin At the Beginning

How many people do you need for a good collection effort and how can you recover and keep your hard-earned revenue?

The colution involves your information system, your customer service representatives, your drivers and, of course, your collections department personnel. I suggest the size of your collection staff be no more than 1 to 2 people, no matter how large your customer base. Anymore than this and it will be costing you more money than it should, thereby reducing your profits when you finally collect those delinquent funds.

You should establish a driver incentive program that is directly realted to the number of uncollected customers on each driver's route. Although drivers generally do not speak to the customer, they can be critical in making your collection process work when they are motivated to do so.

Finally, your collection procedures must be the most methodical in your organization. If you act consistently, the dollars will come flowing back to your bank account on a regular basis.

Representatives and drivers can be trained and retrained and, if all else fails, replaced, which leaves your information system as the key to this entire process. The management of information in a methodical and automated manner is the glue that holds it all together.

Make sure you have an information system where the operations, billing and receivables are in the SAME information base. If you use a separate application for routing, and another for billing, and possibly a third for accounts/receivable and collection management, stop here and fix that problem immediately. In other words, look into replacing your fragmented system with one that is more integrated.

If you have multiple corporations within your organization structure, serving your residential customers through separate databases, fix this problem before continuing. This means you must find a way to identify customers centrally, no matter how splintered the operation on your end or theirs.

If you do not have these issues or you have corrected them, now you can proceed to organize your collection procedures properly. Methodical, automated management of information is essential. If you notify the customer today to pay his bill by Friday or he will be suspended, but your driver still collects that customer's waste on Friday anyway, you might as well throw that notice in the trash.

Likewise, if you have multiple databases and shut a customer off under one of your business names, there is nothing to stop that same customer from signing up for service under another of your business names.

These issues alone illustrate how quickly the information system structure becomes critical to your collection success.

There are four major parts to the successful collection process:

1. Billing the customers;
2. Managing collections notifications and its support actions;
3. Making your drivers part of the collection process;
4. Turning your real loser customers over to collection agencies on a timely basis.

Billing Customers

Billing customers is either part of the problem or part of the solution; it is critical to perform billing on a very consistent schedule. If you bill every two months for service, do it exactly the same way each time. The customer bills should be created and mailed by two days before the first day of service.

For instance, a service period from July 1 to August 31 should be mailed by June 28. The due date should be by the end of the first month of new service, in this case July 31.

Next, make it easy to pay the bill. Offer return envelopes, payment by direct withdrawal (known as ACH), payment by credit cards. The easier you make it, the less likely you are to have a collection problem later. Offer programs which allow the customer to pay for six months' service at a time, including a discount for the six months' payment. The discount should not exceed the interest you can gain by having that extra cash in the bank. Don't let an early payment program cost you profit.

Make sure your bill is clear to the customer. Show the following:

1. Name and address serviced;
2. Any past due balances;
3. The date when the balance due was calculated;
4. New service charges;
5. The total amount owed;
6. The date the balance must be received by your company;
7. Any dunning notice for the past due amount(s);
8. The service period being billed.

To be effective, you should not use the bill as a suspension notice. Test your bill with individuals who have never seen it before. Ask their opinion as to its clarity. The last thing you need is to receive a thousand calls having to explain what the bill means and how much is owed. Good, easy to understand bills will cut down on the number of customers who enter your collection process, so do a good job upfront and reap the benefits.

Another way to simplify the process is to split your customer base into two groups if you bill every other month, or three groups if you bill quarterly. The billing procedure will happen each month, cutting the number of bills and receipts which have to be managed by your customer service staff.

Managing Collections Notification

So now you have identified a group of customers with balances unpaid for at least two periods. You need to act swiftly to bring these customers into line with your required payment standards. Use your information system to build a list of overdue customers based on the amount of their current balance and the age of the balance. Anyone with an unpaid balance of more than 25% of your period billing amount should be on this list. Please do not suspend a customer who owes less than this; you will only lose that customer.

Once you have the list, review it for any customers who are possible exceptions to the general suspension rules and remove them from your register. If a customer has already called and made arrangements regarding the bill, do not send them a notice.

Print suspension notices for the customers remaining on your list and mail them in a timely manner. You must provide a reasonable window for the customer to respond, so do not mail a notice with a suspension date five days or less from the time the customer receives the notice. Even though the customers are at fault, don't give them a reason to make an antagonistic call.

Your suspension notice should include:

1. The account number, name and address of the person being billed and the service address, if different from the billing address;
2. The full amount due;
3. The date the amount should have been paid;
4. The date the customer's service will be terminated if the balance is left unpaid;
5. A number for customer service; this allows the customer to resolve problems unknown to you or to pay the bill by telephone via credit card.

Please note, credit cards are a way of life; don't short change your company by refusing to offer this payment option or failing to allow for the cost of accepting credit cards. Determine the direct cost of managing credit card payments and build it into your billing rates across your customer base. It will amount to a few pennies and your customer base will be paying for the option, not your company.

Now that your notice is out on time, you and your system need to be ready to take action to enforce the words on that piece of paper you just mailed. Mark each customer account with the planned suspension date. If the customer pays as required, clear the suspension date and remove the suspension status. Ideally, the system should do this automatically as soon as you enter payment. The receipts register should list those customers coming off suspension status for review purposes. The operator should not have to intervene to make the removal happen, otherwise it could be forgotten accidentally, which will result in an angry customer on the telephone using up valuable customer service time.

Make Your Drivers Part of Your Collection Process

Explain what your drivers' role should be in the collection process. Create an incentive bonus for each billing period for the number of customers who are fully paid up, based on a percentage of customers serviced. For instance, if the average number of customers with open balances is 10%, offer the bonus to those drivers with less than 7.5% or 5% overdue. Make sure you can generate a report that clearly shows this statistic for your drivers' use; do not spend time with them haggling over who is and is not overdue.

Make sure the bonus is significant enough to make it worth their while to help you. If you offer $10 per period, they will not work hard to enforce suspensions.

Produce two types of weekly route sheets for each route: a detailed report showing all stops to be serviced or suspended, and an exception route listing of all those who are new starts, vacations, suspended or those needing special services. The suspended customers must be clearly marked, bolded if possible. Make sure your drivers understand how to read the reports. It is critical that the route sheets list the customers in the order in which they are serviced, otherwise it may be more trouble than it is worth for the drivers to use the sheets.

Working With Collection Agencies

In the years I have worked with waste companies, the first item I always review with them is the condition of their receivables. In too many cases, I have found tens of thousands of dollars, if not millions, uncollected and open in the receivables detail.

As long as these items remain in receivables:

1. You are overstating the amount of money you can collect. Thus you have overstated your assets and are not accurately representing the total assets of the company.
2. You are paying taxes on revenue you may never collect. You can reduce your bottom line by taking the bad debt expense you deserve.
3. You cannot use any cash that you might gain if you recover some of the dollars via a good collection agency.

Just like the suspension notice, a collection agency notice is a strong tool in recovering receivables. So how do you proceed? First, select a good collection agency with a strong track record in collecting small balances. Make sure they understand your business process. Waste management is a virtual unknown to most of the public, so take the time to explain what they agency will be facing. The agency should make a clear offer to assist your customer in resolving the disputed amount, including re-instating them with your company for future service. Of course, the customer must first pay the balance in full.

Your information system should support this aspect of your collection process as well. Once you choose an agency, use the system to build a register of customers who are currently suspended and have open balances over two periods old. If your billing periods include more than two months of service, you may want to act at the period and a half point. Timing is critical, for the longer the balance remains unpaid, the more likely it will never be paid. The balance used to build the report should be based on a minimum open balance. Again, refrain from turning a customer over to an agency for a ridiculous balance, such as 50 cents.

Once the register is built and reviewed for accuracy, it is time to print a notice to the customer informing him that the account is being turned over to a collection agency. You may want to use this as an in-house collection tool by putting a drop dead date for the customer to respond. If they pay you and not the collection agency, there is obviously more to gain.

The notice should include:

1. The customer's account number, name and address;
2. The balance in dispute/open;
3. The date the balance was due;
4. The date the account will be sent to the collection agency;
5. A warning as to the possible damage to the customer's credit reputation;
6. A telephone number to call before the "drop dead date"; otherwise, the number for the collection agency.

Next, your accounting system should do the following:

1. Create a credit to the receivables balance for each customer on the register for the full amount owed;
2. Create a bad debt entry for each customer for the same full amount owed;
3. Create an electronic file of customers who are on the register to be sent to the collection agency according to their format;
4. Provide a general ledger journal summary entry to support the write off balance established by this register.

If your customer resolves the balance issue with a payment, apply that payment to the bad debt journal open for that customer first, with any remaining balance applied to reopening the customer's account.

Unfortunately, the cost of the agency's services is generally not recoverable and is part of the expense of doing business. Check with you legal counsel to see if the wording of your collection notice will render your customer liable for the cost of collection service as well. This might be a condition of re-instatement of service.

In Summary

Many factors contribute to making a successful residential collection process. It takes your collection department, customer service reps, drivers, collection agency and your information system all working in unison to maximize the return. If they all work together at optimum efficiency, you will enjoy the strength and security of a steady influx of collection income.

 

 

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