Create Customer Segments
The better you know your customers, the better collection efforts will be. The key to prioritizing your collections is to segment your customers. Creating a call list solely on the aging report assumes that each customer can be approached the same way. The truth is that customers pay late for a myriad of reasons that require different approaches.
Certain attributes of a company-such as its size, industry, and age-can help you predict late payments. Collections employees can use this information to better prioritize who to focus on and what approach would be the most effective in collecting outstanding debt.
The best way to segment your customers is by gathering information about your customers’ history. What is the status of their accounts – invoices, credit memos, unapplied payments, other debits or credits? What is the average value of an account, and what are the highs and lows? History is a great predictor of the future so a strong understanding of a costumer’s history can help identify who to focus on and what approach to take.
In addition to a customer’s financial history with your company, you will need to gather information on the:
• Size and age of the company
• Is the business seasonal?
• What industry is the business in?
• Does the company sell to few or many customers?
• Position in the supply chain
• Credit history
Once you have collected a detailed history of your customers, you will use the information to place your customers into segments – such as new customers, high-risk industries and average days late. The collections professionals can then analyze the different segments based on their inherent risk to determine their appropriate priority and to come up with a collections approach that will fit the particular segment. While creating portfolios requires a significant amount of work up front, being able to focus on the truly high-risk customers will help keep bad debt to a minimum.