Inside Self-Storage Magazine 04/2001: Dreaded Delinquency Collections

Dreaded Delinquency Collections

By David Fleming

I was sitting here making my collections calls, when I realized this is exactly what we touched on in my February column: late fees--the dreaded task of collecting delinquent payments. Some of us are good at it, some of us aren't. Most, if not all, managers hate collections. (If there are any out there who actually enjoy this process, please contact me immediately so we can have your head examined!)

Although this is a very unpleasant aspect of our job, it is also very necessary. I mean, what kind of place would this world be if everybody just paid their bills on time? In this month's column, I would like to impart some helpful collections techniques I use, and maybe you can contact me regarding things that work for you. But before I begin, I would like to classify our "deadbeats," as we so affectionately refer to them.

I find as I make my collections calls there are quite a few types of late-paying renters out there. The first type I run into are the "forgetters." These are the people who simply need a reminder to pay each month. Then there are the "excusers"; although forgetting may have been their first excuse, it certainly wasn't their last. You know the type--every month it's a different reason, and if you've noticed, each month the story gets longer and more dramatic. Then there are the "leisurely late payers." These are the ones who don't make excuses for being late--they just "haven't gotten a chance to get over there." And, of course, we run into those who seem to be on our list every month. These are the "chronics." They could be chronic forgetters, chronic excusers or chronically leisure. At any rate, they are chronic, and these are some of the toughest. It seems after a while they just stop trying to make an excuse for their behavior.

One more ingredient we can throw into the mix is the "haves vs. the have-nots." Let's face it, some people just can't pay the bill for whatever reason. Some live paycheck to paycheck, but some obviously have the money--like the guy in the new Mercedes SUV (or maybe that's the reason he can't pay the bill!). As you can probably see by now, when you start mixing these "types," the picture can get quite complicated.

Now, I know a lot of managers out there try to work with these customers. And I think this is a good thing. But you can't let working with the customer get in the way of doing your job. If your delinquency rate is above 5 percent, it's time to put some good, solid policies and procedures into your collections efforts. Good old "Joe" may have gotten divorced, have a medical condition, have his car break down, have his dog die, have the check in the mail--whatever--but he still needs to pay his bill. He can pay it late, he can even make partial payments if he wants, but he had better do something because the clock is ticking.

Handling 'Delinquents'

Every state has a law defining when you can consider your customers "late" in their payments. In some states, it's five days, in some it's 10. In other places, it may be as long as a month. Whatever that grace period is, you need to know it, because on the last day is when your collection efforts should start. Keep in mind that a 10-day grace period means your customer is late on the 11th--assuming you work on a first-of-the-month basis. This happens to be my particular schedule, so this is the example I'll use.

Rent is due on the on the first of the month. After the 10-day grace period (on the 11th), our computer is set up to automatically print out a customer invoice with our "administrative fee" added to the account. Our system also automatically flags the customer, barring him gate access, and recommends we overlock his unit. I might mention this overlock is in addition to his own padlock. I certainly don't recommend anyone cut a customer's lock after only 10 days. And I realize there are different laws in each state regarding some of the actions you can take and the time periods needed before you can take them. I highly recommend you familiarize yourself with these. If it were up to me, I would set my policies and procedures according to the minimums.

I know a lot of you out there are saying this is too much, that taking such drastic actions after just a few days of delinquency is going to upset your customers. Realistically, it may upset a few; but I find this procedure sends a clear message that lateness will not be tolerated. If you allow people to access their belongings while being delinquent, you are removing your front line of defense against delinquencies. If they need to access their belongings, then what better incentive to pay the rent? And these procedures can be easily explained by (or blamed on) the computer. (By the way--those of you not yet computerized need to get with the program!)

Now on to the collection call. The first call takes place on the 11th. Remember all of those horrible things the computer wants you to do? We just give the tenant a "courtesy call" reminding him of the rent due for this month. The only reason we're calling is because the computer has locked him out of the facility. We just didn't want him to show up after office hours and not be able to get in. And if he'd be willing to come in today to pay the rent, we'd be willing to go ahead and waive the late fee this one time as a courtesy. If he wants to give us a credit card over the phone, that will be fine. We can even set it up so we just bill the card each month (if you're not set up to accept credit cards, then again, get with the program!)--then he won't have to worry about "forgetting" again.

Do you see what's happening here? Not only are we now looking out for the tenant's best interest and playing ally against the computer (that machine has no compassion for his circumstances!), but we have offered to save him money. Hopefully, we've also gotten him to agree to auto-debit. If not, then we tried to at least get him to take advantage of our no-late-fee guarantee (see my February column for more information on that). Remember that a good manager is always selling--if not our product, then our service. With any luck, this is the last time we'll ever have to call this customer for this reason. But what if it isn't?

No More Mr. Nice Guy

All right. The nice-guy approach doesn't work for everyone. I find it usually cuts my delinquencies to less than half of what they were. But now you've already locked the late tenant out, charged him an administrative fee, sent him a letter and called him. Not bad. Now, when your boss asks, you've done all you should. A few more days go by, and you send a second letter (ours goes out on the 20th). Some people charge a letter fee or another administrative fee. We just send the letter, and make the second phone call. As the end of the month nears, the tenant gets yet another phone call.

Yes, I know this sounds unpleasant, and I know there are other things that need to be done. But if you had gotten the tenant on auto-debit, or at least the no-late-fee guarantee, you wouldn't need to do it! After the tenant is 30 days late, he is in default of the rental agreement--at least in our state. Of course, that's another reason to call him.

At this point, we have either been trying to get a hold of him and just haven't been able to, or he hasn't kept his word. If it's the first of these two, it's time to call the alternate contact on the rental agreement (you did get one of those right?). But be careful not to divulge too much information to this person. Some states have laws regarding this, not to mention it's just bad etiquette. Just stress that it is very important the individual you are trying to reach gets in touch with you. This person is usually a parent or family member, but don't let this lull you into a false sense of security. I find they are often aware of the fact that your customer has a unit at your facility. Not telling them why you are calling not only protects you, but leaves them believing there is some type of emergency, which in turn prompts a return call from the tenant.

Of course, sometimes the tenant just hasn't kept his word. By now, he is probably tired of making excuses and may be trying to avoid you. Have you ever called a tenant only to be told he is not there, but you could almost swear that it's him talking to you? Just go ahead and leave the message to return your call. Give him a few minutes to relax, and call him back. This time, instead of saying, "Could I speak with so-and-so, please," which alerts him this is a professional call, use his first name like his friends or family would. You'd be surprised how many people are suddenly there, sounding just like the person with whom you just left a message.

We have now sent three letters and made three phones calls in just 30 days. We didn't like it, but it's done. When the boss asks, we can say we did it. Of course, it's important to document all of this, and most software will do that for you. Besides documenting the letters in the tenant's file, most software has some type of delinquency report or even a call sheet to make notes on. Save these. Not only is it important so you can look back at what the conversation or arrangement with the customer was, but you have something to show the boss. Most important, you have written and dated proof of your efforts to contact the customer before auctioning his belongings--because that's the next step. Of course, that's a whole other article. So until next time, remember: Perseverance pays off. Now I've got to go finish those phone calls.

David Fleming is a manager and manager trainer for Premier Self-Storage Inc. of Amherst, N.Y., which plans to build 20 state-of-the-art facilities over the next five years. After having managed facilities in three states over the past 10 years, Mr. Fleming now resides in a Buffalo suburb with his two children and his co-manager and wife, Tina, who will also contribute to this column. David has won awards from industry publications, including the Inside Self-Storage award for Manager of the Year. To contact the Flemings, call 716.688.8000; fax 716.688.6459; e-mail [email protected].

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