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The Why of Successful Collections
and Efficient Credit Men
tieorge Botsford, of Sherman, Clay & Co., Seattle, Points Out That the Efficient Collections Department
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Centers on the Man Placed in Charge of That Work—Some of the Necessary Qualifications
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for the Man Who Holds That Position—Prompt Collections Mean Triple Compensation
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VERY credit transaction is in the nature
of a contract, according to the terms of
which the seller surrenders title to the
merchandise or other valuable commodities, in
return for a promise of payment to be rendered
on or before a specific date. This is just as
true of open account sales as of instalment con-
tract sales. Accordingly, not until such pay-
ment is made is the contract carried out; not
until then is. the seller again in possession of his
capital plus the profit earned on the transaction.
A good collection system demands that this
contractual feature be kept constantly in view,
yet experience shows that in many cases this is
not done. How many of us have frequently be-
come convinced of the evident intention of the
purchaser to avoid payment for as long a time
as possible, and possibly to avoid it altogether?
Great laxity in the matter of making payment
according to contract terms is often found, and
for this reason an efficient collection department
is an indispensable adjunct to the business or-
ganization of every mercantile establishment.
Someone has said that the proper time to con-
sider the payment of an account is before that
account is opened. Collection and credit work
would be greatly simplified if earlier attention
were given each account. "How much credit
do you wish?" might well be the question of
the merchant, and "For how long, and payable
on what terms?" And when there is a meeting
of ;minds on these points the merchant is fully
justified in adding: "I shall expect you to live
Ujj^lto the terms you yourself have made."
'HJrhis is a perfectly correct attitude to assume
i^ibmpt payment of due accounts should not be
regarded as a favor or spoken of as such, except
purely as a matter of courtesy. It is not more a
favor for the debtor to remit promptly accord-
ing to terms than for the creditor to extend the
credit and make the delivery of the goods sold.
Respect for House
And here let me add—the house that insists
upon prompt payment is more respected by its
customers than is its easy-going competitor. Do
ypa remember how the kid that you occasion-
ally played with and who allowed himself to be
abused by his fellows, without strongly resent-
ing it, was looked upon by the other kids? Just
so'the debtor will come to regard the creditor
who allows his account to go unpaid.
^Experience goes to show that the collection
o£ accounts when due drives away no desirable
trade. The points to be observed are that a
tHorough understanding of terms should be had
before the order is filled and that no devia-
tion from these terms be permitted save for
perfectly valid reasons, and reasons mutually
satisfactory. This is a hard thing to do in re-
tail business, where the accounts are small, but
with large accounts, especially instalment sales,
because of the worth-whileness of the account,
the rights of creditors are more likely to be
respected.
Reasons for Non-payment
What are the reasons for non-payment?
These are apparent to all who work with ac-
counts. First, mention carelessness, no inten-
tion to neglect accounts that may be due and
payable, but too busy to write a check, or simply
forgetfulness. The right kind of pressure brings
the money here. Then inability to pay. Here
money pressure is not the remedy. It may mean
further extension, as the waiving of instalments
payable for a few months. Or if the account be
a wholesale one, possibly the extension of
further credit to provide.the "sinews of war" to
enable the debtor to right himself again. Then
the unwilling debtor. Here quick, drastic action
may be demanded, and if needed should be
promptly instituted. Unwillingness must be
turned to willingness. With each and all of
these three classes it is evident that promptness
in securing information is of prime importance.
Therefore, let us lay down a rule in our credit
and collection work that until we have learned
our customers' habit of payment, we follow
new accounts with the same diligent, anxious
scrutiny that characterizes our work upon the
account that is known to be bad. The time to
form right habits is when the account is young.
The-Man in Charge
In the organization of a collection department
all centers around the man in charge. Con-
sider then the man. For his purely credit func-
tions, the credit man needs distinct character-
istics. First is a wide and general knowledge
of business methods and business conditions.
When deciding whether to open an account it
is important that he know the business of his
prospective customer, for if the customer be
engaged either as owner or worker in a line of
business that is not enjoying fair prosperity he
can know his risk is greater than it would be
under opposite conditions. And here permit me
to say that in an instalment business an article
well sold will not be the cause of anxiety from
the collection department point of view.
Insight and Analysis
A second necessary characteristic of the credit
man is a keen insight and an analytical mind.
The work of a credit man is a succession of de-
cisions, each one of importance, but necessarily
made hastily. The judgments are not arbitrary,
but are based on a study of certain groups of
facts, usually of four kinds:
First, the general knowledge of the credit
man;
Second, impressions gained by him from per
sonal touch and acquaintance with the cus-
tomer;
Third, specific facts concerning the character,
ability and resources of the applicant, gained
in various ways;
Fourth, if he is an old customer, his record
with the house itself. Here also we can add,
his record with other houses, obtainable through
the commercial agencies, both wholesale and re-
tail, and from those from whom it is learned
that he buys.
Tact
A third requirement of the credit and collec-
tion man is tact, and tact in the broadest possi-
ble sense. Tact means sympathy with other
people, the ability to put oneself in their place
and understand their condition without being
told so in so many words. It implies an open-
ness to receive aid -and advice, a willingness to
learn new facts and change old methods. It
carries with it the idea of caution and care-
fulness. No tactful man is impetuous; he
weighs and considers all pertinent facts before
he comes to a decision. Yet, the very word
"tact" implies ability to decide quickly, an in-
tuition almost, of the right course to take. The
man of tact must have a good memory, other-
wise he will make errors and blunders; he must
remember people's weaknesses and their sensi-
tive spots, in order to avoid them; he must re-
member their interests and hobbies in order to
fraternize with them; he must remember their
strength and their price, in order to appeal to
their vanity.
Thus the tactful, sympathetic man will learn
all he wishes from a customer without the cus-
tomer really knowing he is being interviewed
and without any loss of self-respect on the part
of the customer or a feeling of resentment. The;
credit and collection man is often called upon!
to do unpleasant things. If he can do this jnj
such a way as to keep the good wih 1 of liis cus-.
tomer and even make himself the latter's con-,
fidant, this is tact. I recall a statement that
was made of a banker friend, of whom it was
said, "Mr
can turn down a request f<3*j,
a loan and make the applicant feel that he i&
doing him a favor." In our business we must be
so tactful as to be able to take a piano away
from a purchaser and make him feel the loss Is
for his own good, and this is possible, for how'
many of you have done this very thing and had
your customer come back later and buy agaim
and pay out the contract with regularity?
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Sympathy's Place
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Let me emphasize by mentioning again t$e
large place that sympathy has in the successful
credit and collection manager's work. We hear
every sort of reason given for non-payment;!
from new babies to death, with all the possible
intervening- occurrences, and for all these the
successful head of this department must have,
not only a listening ear, but a sympathetic one.'
A test of the collection or credit man is his
ability to collect. Of the two sides of his life,
provided he be one and the same man, possi-
bly collections is the more important, for the
money we make is not really made until it has
found its way into the cash drawer. By ability
to collect is not meant the -mere power to ex-
tract the instalment that may be due from a
refractory and unwilling debtor, but" rather the;
ability, tOyjmpress and train the debtor, willing;;
or stubborn, in such a way that he will uncoji-
sciously get into the habit of paying promptly./
Triple Compensation
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The prompt collection of accounts has a triple
compensation. It keeps outstanding accounts
down, and thus requires less capital to run the
business. The added value of a credit man, who
by keeping his accounts receivable low enables
his employer to run his business with $100,000
less working capital than his competitor doing
a similar volume, and he is earning more than;
his yearly salary right here.
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In the second place, the strict collector is
the best salesman. In considering open accounts,-;
it is an admitted fact that a customer who has ai
past-due account with a house will not buy.:
The loss is apparent.
In the third place, all agree that the great
majority of losses are among overdue accounts;
a man who pays regularly is most likely not to:
be embarrassed. It is no harm to let the i$&
stalment buyer know that he has signed a con-;
tract which is just as binding upon the buyer:
as the seller; both parties have entered i
an agreement and it is for the credit and
tion department to educate its customers to a.
realization of this fact, and that compliance;
with the terms of contract is necessary.
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At this point some one asks what steps are to :
be taken in this educational process. First, I
would say that the new account is to be care- ;
fully followed up, just as carefully as the hardest •
(Continued on page 11)