Dreaded Delinquency Collections

By David Fleming

I was sitting here making my collections calls, when I realized this isexactly what we touched on in my February column: late fees--the dreaded task ofcollecting 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 whoactually enjoy this process, please contact me immediately so we can haveyour head examined!)

Although this is a very unpleasant aspect of our job, it is also verynecessary. I mean, what kind of place would this world be if everybody just paidtheir bills on time? In this month's column, I would like to impart some helpfulcollections techniques I use, and maybe you can contact me regarding things thatwork 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 oflate-paying renters out there. The first type I run into are the"forgetters." These are the people who simply need a reminder to payeach month. Then there are the "excusers"; although forgetting mayhave been their first excuse, it certainly wasn't their last. You know thetype--every month it's a different reason, and if you've noticed, each month thestory gets longer and more dramatic. Then there are the "leisurely latepayers." These are the ones who don't make excuses for being late--theyjust "haven't gotten a chance to get over there." And, of course, werun into those who seem to be on our list every month. These are the"chronics." They could be chronic forgetters, chronic excusers orchronically leisure. At any rate, they are chronic, and these are some of thetoughest. It seems after a while they just stop trying to make an excuse fortheir behavior.

One more ingredient we can throw into the mix is the "haves vs. thehave-nots." Let's face it, some people just can't pay the bill for whateverreason. Some live paycheck to paycheck, but some obviously have the money--likethe guy in the new Mercedes SUV (or maybe that's the reason he can't pay thebill!). 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. AndI think this is a good thing. But you can't let working with the customer get inthe way of doing your job. If your delinquency rate is above 5 percent, it'stime to put some good, solid policies and procedures into your collectionsefforts. Good old "Joe" may have gotten divorced, have a medicalcondition, have his car break down, have his dog die, have the check in themail--whatever--but he still needs to pay his bill. He can pay it late, he caneven make partial payments if he wants, but he had better do something becausethe 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's10. In other places, it may be as long as a month. Whatever that grace periodis, you need to know it, because on the last day is when your collection effortsshould start. Keep in mind that a 10-day grace period means your customer islate on the 11th--assuming you work on a first-of-the-month basis. This happensto 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 customerinvoice with our "administrative fee" added to the account. Our systemalso automatically flags the customer, barring him gate access, and recommendswe overlock his unit. I might mention this overlock is in addition to his ownpadlock. I certainly don't recommend anyone cut a customer's lock after only 10days. And I realize there are different laws in each state regarding some of theactions you can take and the time periods needed before you can take them. Ihighly recommend you familiarize yourself with these. If it were up to me, Iwould 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 suchdrastic actions after just a few days of delinquency is going to upset yourcustomers. Realistically, it may upset a few; but I find this procedure sends aclear message that lateness will not be tolerated. If you allow people to accesstheir belongings while being delinquent, you are removing your front line ofdefense against delinquencies. If they need to access their belongings, thenwhat better incentive to pay the rent? And these procedures can be easilyexplained by (or blamed on) the computer. (By the way--those of you not yetcomputerized 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 givethe tenant a "courtesy call" reminding him of the rent due for thismonth. The only reason we're calling is because the computer haslocked him out of the facility. We just didn't want him to show up after officehours and not be able to get in. And if he'd be willing to come in today to paythe rent, we'd be willing to go ahead and waive the late fee this one time as acourtesy. If he wants to give us a credit card over the phone, that will befine. We can even set it up so we just bill the card each month (if you're notset up to accept credit cards, then again, get with the program!)--then he won'thave to worry about "forgetting" again.

Do you see what's happening here? Not only are we now looking out for thetenant's best interest and playing ally against the computer (that machine hasno 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 triedto at least get him to take advantage of our no-late-fee guarantee (see myFebruary column for more information on that). Remember that a good manager isalways selling--if not our product, then our service. With any luck, this is thelast time we'll ever have to call this customer for this reason. But what if itisn't?

No More Mr. Nice Guy

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

Yes, I know this sounds unpleasant, and I know there are other things thatneed to be done. But if you had gotten the tenant on auto-debit, or at least theno-late-fee guarantee, you wouldn't need to do it! After the tenant is 30 dayslate, he is in default of the rental agreement--at least in our state. Ofcourse, that's another reason to call him.

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

Of course, sometimes the tenant just hasn't kept his word. By now, he isprobably tired of making excuses and may be trying to avoid you. Have you evercalled a tenant only to be told he is not there, but you could almost swear thatit's him talking to you? Just go ahead and leave the message to return yourcall. Give him a few minutes to relax, and call him back. This time, instead ofsaying, "Could I speak with so-and-so, please," which alerts him thisis 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 theperson 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. Ofcourse, it's important to document all of this, and most software will do thatfor you. Besides documenting the letters in the tenant's file, most software hassome type of delinquency report or even a call sheet to make notes on. Savethese. Not only is it important so you can look back at what the conversation orarrangement with the customer was, but you have something to show the boss. Mostimportant, you have written and dated proof of your efforts to contact thecustomer before auctioning his belongings--because that's the next step. Ofcourse, that's a whole other article. So until next time, remember: Perseverancepays off. Now I've got to go finish those phone calls.

David Fleming is a manager and manager trainer for Premier Self-StorageInc. of Amherst, N.Y., which plans to build 20 state-of-the-art facilities overthe next five years. After having managed facilities in three states over thepast 10 years, Mr. Fleming now resides in a Buffalo suburb with his two childrenand his co-manager and wife, Tina, who will also contribute to this column.David has won awards from industry publications, including the InsideSelf-Storage award for Manager of the Year. To contact the Flemings, call716.688.8000; fax 716.688.6459; e-mail [email protected].