By Pamela Alton
Collections today are said to be 95 percent psychology and 5 percent muscle. This article contains collection tips, techniques and thoughts that can aid you and your managers in collecting more money and doing it faster. Much of this may be common knowledge that you are already implementing on a daily basis. But, there are bound to be several ideas and action-oriented tips that, if you use them, will help you or your managers do an even better 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 will appear like they are "hassling" a tenant. The tenant will move out, and this will create vacancies, causing occupancy levels to drop. This usually occurs when the management is not properly trained in collections, there is an absence of collection policy or the policy is unclear.
A few of the reasons to have a formal or written collection policy are these: It will clarify who does what, facilitates training, supports your company's actions, prevents unauthorized waiving of late fees or charges, promotes consistency and reduces wasted time. Remember, just like telephone sales, collections must be taught and rehearsed so the manager 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 an alternate address and "emergency contact" name and phone number. Some of the warning signals or "red flags" of a potential customer include: tenant switches banks frequently, changes in payment patterns, partial payments rather than payment in full, economic problems in the tenant's geographical area or problems with his industry. A manager 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 for years, yet they pay you in questionable means--such as checks with printed numbers less than 300, no preprinted home address on the checks, start checks with no printed information, address on check and ID don't match or the tenant has no photo ID--questions should be raised. Similar question marks should be considered when receiving payment by mail. 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 late letters 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 at auction. Each time we sell a tenant's goods, we are exposed to legal liabilities, and we should therefore do everything possible to collect the debt and avoid the lien sale altogether.
Collection Letters: Obviously, we must send our late, pre-lien and lien-sale letters, but it is the least-effective way to collect money. It is a "one-way communication" with the tenant that is subject to misunderstandings and can't solve problems or determine if a payment problem exists. There are several positives to collection letters, including that they set the stage for foreclosure, they are inexpensive 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 by certified mail with return-receipt, address-correction requested and forwarding postage guaranteed. They should also be mailed to all known addresses (both the tenant's and alternate addresses). Another thing to keep in mind is that the collection letter is not the debtor's only mail. Your envelope never contains good news for the recipient. Mark the envelope 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 a valued tenant," "Avoid bad debt or lien-sale record" or "Avoid outside collection-agency placement." Make each collection letter progressively stronger.
Telephone-Collection Calls: Collection calls should be part of a manager's daily duties. Telephone contact is more costly than letters, but usually more effective. Calls should supplement letters and follow up on what is said in the letters. Being two-way communication, calls can identify and solve problems. Managers should always be in control of 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 or objection, find a solution and close the call with a commitment for payment.
Remember, collection calls have three phases: 1. The opening phase, 2. The negotiation phase and 3. The closing phase. Let's look at each phase:
Opening Phase: Verify the tenant's identity ("I'm calling for (name)... is this he?"). Verify the tenant's address (this is a good time to get address correction 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 step is ... 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 full today." 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 will be sending me $435 this Friday (date). Is this correct?"). Payments are always expressed as dollar amounts; points in time are expressed as dates. Make sure the tenants confirm 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 the greatest deteriorating factor on the collectability of an account is time. The second is that you will never have enough resources to collect all of your delinquencies. Implement an early cure program to maximize your recoveries. These will help you identify and single-out non-paying customers from those that are merely slow-paying, enabling you to treat them accordingly. Accounts that are 30 days delinquent or less are generally 80 percent collectible. Those accounts that are more than 60 days delinquent are typically less than 50 percent collectable. Working accounts less than 30 days behind will typically maximize your collection efforts, and you should concentrate all your efforts into the time frame where they will be most profitable. Start on your delinquents early, contact them 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 amount owed. You can write a letter to the tenant stating the unit was sold and state that the balance will now be turned over to a collection agency. Or you can write off the balance as bad debt.
- Always use a full-service agency as opposed to letter-writing services, etc.
- Look for agencies that offer especially low rates for early referral of accounts.
- Select an agency that works on a national basis rather than a local or regional one. This way, debtors will be pursued, even if they move out of your local area.
Knowledge is power--the more information you obtain when you first rent the unit, the easier your collection process will be, and the better prepared you are if the tenant becomes late. Your collection ratio is only as good as your policies, procedures and manager'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, the squeaky wheel gets the grease.
Pamela Alton is the owner of Mini-Management, the largest nationwide manager-placement service. Mini-Management also offers facility management in the Western United States, policy and procedures manuals, sales and marketing training manuals, inspections, audits consulting, new start-up training and training seminars. For more information on the various services offered by Mini-Management, call (800) 646-4648.