Collection Tips and Techniques

Strategies to collect money faster

By Pamela Alton

Collectionstoday are said to be 95 percent psychology and 5 percent muscle. This article containscollection tips, techniques and thoughts that can aid you and your managers in collectingmore money and doing it faster. Much of this may be common knowledge that you are alreadyimplementing on a daily basis. But, there are bound to be several ideas andaction-oriented tips that, if you use them, will help you or your managers do an evenbetter job on your receivables.

Why Collection Problems Occur

Asking for money is not always an easy task; however, it is part of your manager's job.Perhaps some managers fear making collection calls because they are afraid that they willappear like they are "hassling" a tenant. The tenant will move out, and thiswill create vacancies, causing occupancy levels to drop. This usually occurs when themanagement is not properly trained in collections, there is an absence of collectionpolicy or the policy is unclear.

A few of the reasons to have a formal or written collection policy are these: It willclarify who does what, facilitates training, supports your company's actions, preventsunauthorized waiving of late fees or charges, promotes consistency and reduces wastedtime. Remember, just like telephone sales, collections must be taught and rehearsed so themanager feels comfortable using these techniques.

Warning Signs of Potential Collection or Bad-Check Problems

Collections begin the moment you rent a unit. Always get a photo ID and ask for analternate address and "emergency contact" name and phone number. Some of thewarning signals or "red flags" of a potential customer include: tenant switchesbanks frequently, changes in payment patterns, partial payments rather than payment infull, economic problems in the tenant's geographical area or problems with his industry. Amanager should be aware of the companies in his area, layoffs, company downsizing,military base closures, etc.

When a tenant first rents a unit and they tell you they have been in the area foryears, yet they pay you in questionable means--such as checks with printed numbers lessthan 300, no preprinted home address on the checks, start checks with no printedinformation, address on check and ID don't match or the tenant has no photo ID--questionsshould be raised. Similar question marks should be considered when receiving payment bymail. Always be aware of the checks you are processing.

Collection Letters and Calls

The two basic ways we collect the money due us in the self-storage industry are lateletters and late calls. Of course, we all know these are the first steps in"foreclosure or lien sale" and, ultimately, the selling of the tenant's goods atauction. Each time we sell a tenant's goods, we are exposed to legal liabilities, and weshould therefore do everything possible to collect the debt and avoid the lien salealtogether.

Collection Letters: Obviously, we must send our late, pre-lien and lien-saleletters, but it is the least-effective way to collect money. It is a "one-waycommunication" with the tenant that is subject to misunderstandings and can't solveproblems or determine if a payment problem exists. There are several positives tocollection letters, including that they set the stage for foreclosure, they areinexpensive and, they let your tenant know that you haven't forgotten about them.

Pre-Lien and Lien-Sale Letters: Pre-lien and lien-sale letters should be sent bycertified mail with return-receipt, address-correction requested and forwarding postageguaranteed. They should also be mailed to all known addresses (both the tenant's andalternate addresses). Another thing to keep in mind is that the collection letter is notthe debtor's only mail. Your envelope never contains good news for the recipient. Mark theenvelope with a term, such as "Urgent," "Personal,""Confidential," etc. Motivate the tenant to pay with certain appeals like,"Save additional late fees," "Keep your good credit," "Remain avalued tenant," "Avoid bad debt or lien-sale record" or "Avoid outsidecollection-agency placement." Make each collection letter progressively stronger.

Telephone-Collection Calls: Collection calls should be part of a manager's dailyduties. Telephone contact is more costly than letters, but usually more effective. Callsshould supplement letters and follow up on what is said in the letters. Being two-waycommunication, calls can identify and solve problems. Managers should always be in controlof the telephone call. They should follow a collection-call format: Identify the tenant,identify themselves, demand payment in full, then ... use a psychological pause. Remember,the first one to speak loses. Then, your manager should determine the problem orobjection, find a solution and close the call with a commitment for payment.

Remember, collection calls have three phases: 1. The opening phase, 2. The negotiationphase and 3. The closing phase. Let's look at each phase:

Opening Phase: Verify the tenant's identity ("I'm calling for (name)... isthis he?"). Verify the tenant's address (this is a good time to get addresscorrection for future mailings). Identify yourself and state the debt that is owed("You are past due in your rent for unit number X ... and you now owe $435.").State the type of action you desire ("I need payment in full today or the next stepis ... pre-lien notice and another late fee, lien notice and another late fee, auction ...). Pause, and let the tenant respond.

Negotiation Phase: (In this order) Step one: "I must have payment in fulltoday." Step two: "When can you send payment in full?" Step three:"How much can you send today?" Step four: "When can I expect payment?"

Closing Phase: Recap what is going to happen and when. ("To recap, you willbe sending me $435 this Friday (date). Is this correct?"). Payments are alwaysexpressed as dollar amounts; points in time are expressed as dates. Make sure the tenantsconfirm that they understand the next action on their part.

Collection "Survival Skills"

Remember that in collections, there are two basic concepts. The first is that thegreatest deteriorating factor on the collectability of an account is time. The second isthat you will never have enough resources to collect all of your delinquencies. Implementan early cure program to maximize your recoveries. These will help you identify andsingle-out non-paying customers from those that are merely slow-paying, enabling you totreat them accordingly. Accounts that are 30 days delinquent or less are generally 80percent collectible. Those accounts that are more than 60 days delinquent are typicallyless than 50 percent collectable. Working accounts less than 30 days behind will typicallymaximize your collection efforts, and you should concentrate all your efforts into thetime frame where they will be most profitable. Start on your delinquents early, contactthem often in the first 30-day late period and get progressively stronger as time goes by.If you do have to sell a tenant's unit, you will probably not receive the total amountowed. You can write a letter to the tenant stating the unit was sold and state that thebalance will now be turned over to a collection agency. Or you can write off the balanceas bad debt.

Collection Agencies

If you choose to send your accounts to a collection agency, here are some basic rulesof thumb:

Knowledge is power--the more information you obtain when you first rent the unit, theeasier your collection process will be, and the better prepared you are if the tenantbecomes late. Your collection ratio is only as good as your policies, procedures andmanager's persistence. Don't be afraid to be different--call on weekends and evenings.Follow up quickly on every delinquent account before too many days pass. Remember, thesqueaky wheel gets the grease.

Pamela Alton is the owner of Mini-Management, the largest nationwidemanager-placement service. Mini-Management also offers facility management in the WesternUnited States, policy and procedures manuals, sales and marketing training manuals,inspections, audits consulting, new start-up training and training seminars. For moreinformation on the various services offered by Mini-Management, call (800) 646-4648.