For a system that you will have to fall back on several times over the course of your business career, your need to have tried and true but more importantly clear cut and solid strategies and policies in place for everyone to follow. Policies and strategies such as this exist for the sole purpose of directing your employees’ actions under certain circumstances and guiding them on how to respond when things change. Having a good plan is critical to the overall success of the unit, even if that plan has to sometimes be altered on the fly or not used at all.
The first and most important policy to formulate for your collections team is how they are to initially contact past due clients. There are so many ways to go about it, there needs to be a guide that determines which tactic is most effective and when. Should the team contact them through phone, email, or a written letter, and how many days past due should first contact be? Moreover, you’ll need to lay out the rest of the procedure as well, such as how and when second and final contacts should be carried out. This is one of the most important strategies to formulate and clearly define for your team.
You will also need to set up policies for the handling of risk based collections. A lot of things can happen during the process that affect how it needs to be handled. Sometimes the client has suffered personal tragedy, and in that case your agents may need to approach them differently. You may also encounter issues with client excuses, clients unable to be contacted, and other problems and obstacles that you can’t expect to be part of the normal process for a collections officer. You need to lay out strategies and policies for your employees to use when these obstacles arise, in order to handle the situation as efficiently as possible.
You’ll probably also want to use a strategy that divides your clients into segments. Knowing your customer segments is a critical aspect of running any business, and it is exactly so for collections as well. Having different types of clients divided into groups that match the criteria you have set will make it easier to predict how they will be dealt with whenever particular situations arise. What criteria you use is completely up to you, but the most common criteria are location, solvency, ability to pay and attitude.
In the end, these defined strategies and policies will never be one hundred percent full proof. They will often need to be altered on the fly as situations change, but that doesn’t negate the useful nature of having a plan in the first place. Whether or not a plan is used it is always prudent to have one in place as the default method of reaction to obstacles and issues. How you go about establishing those strategies and policies is key to their success.
We interview CEOs and CFOs about growth and the infrastructures needed to support it. Today, we interview Jordi Pedrol, part-time CFO for several startups and companies.
Can you tell us about your experience?
I’ve been working in Finance for 30 years. I worked in the Tech industry in Silicon Valley in the late 90s’, during the first wave of the Internet.
I moved to Spain and I work as part-time Chief Financial Officer since 2008. I first did it as an independent consultant and now, I started my own part-time CFO and financial advisory company.
Why do companies want to work with you?
I get lots of requests from growing startups that need to get funds, investments and financial help. We usually work for companies and startups before their Series B funding. They don’t need a full-time CFO at that time, but need financial advisory. When they grow, find their product market-fit and start to generate revenues, they hire a full-time CFO.
Part-timing CFOs are really developed in the United States, but not that much in Spain because the ecosystem is not mature enough. Even if it’s a growing trend.
When a company hires you, what are you main missions?
It depends on the stage of the company. But, I can sum up my missions in two main categories:
- Financial planning, budgeting, cash-flow analysis, forecasting, Business planning and monitoring Business Model.
- And a more operational role that consists in implementing the right infrastructure and processes to support companies’ growth.
Startups also call me when they want to raise funds to prepare them and to make them investment-ready.
What are your main challenges?
Companies frequently call me in emergency situations, when they are running out of cash and need funding to keep living. I need to act quickly because the company’s survival depends on my actions.
The other main challenge is to support their growth by developing the right infrastructures. Which is far from being easy when there is everything that needs to be done.
How do you see the future for the CFO position?
I already see lots of changes since I started. At the beginning of my career as part-time CFO, when I went to propose my services to companies, they didn’t see the value I could give them.
Now it’s different, entrepreneurs come to find me for my help. Entrepreneurs have excellent technical skills but very few knowledge on finance. They tend to focus on their product and their market, rather than on finance. They want to delegate this time-consuming part of their business. They also have more pressure from investors, this is why they need external professionals to support them.
The ecosystem is maturing, becoming more professional with lots of new services for entrepreneurs and startups.
For the CFO position, it is really different whether you work for a startup or a traditional company. In the startup world, you are closer to the CEO, you are more involved in the company. Your role goes beyond your financial function and need to learn to work in a chaotic environment. You are like a business partner who needs to understand all the components of the company.
The collection process is infamous in both business and everyday life as one of the most frustrating hassles one can be involved with. Whether you’re trying to collect or someone is trying to collect from you, it’s always a tough process that spurs irritability and frustration. But as far as collecting goes, there are ways to improve the process and make it easier for your company, either by reducing the effort it takes to collect, or cutting down on the time it takes to collect money you are owed. With the right strategies you can often do both, and the top strategy for achieving that is proactivity.
What is Proactive Recovery?
Proactive strategy is the art of solving problems before they are even actual problems. Not only does the art of prevention make short work of issues that many businesses suffer from when they try to collect invoices and debts, but they are often less costly than rectification practices as well. Thankfully there are many proactive strategies to use in the collection process to optimise it.
The whole point or proactive strategies is to manage clients carefully before they are ever late on a debt. If you are careful about increasing the likelihood of a client paying, you’ll be more likely to avoid debts and late invoices at all.
One of the best ways to make sure that happens is to educate the client prior to disbursement. The more a client knows about the situation they’re getting into, the better. Having your clients be informed beforehand has a significant impact on reducing default rates, if only because the people who know what they are getting into and still do are more likely to follow through with their obligations.
Informing, informing, informing
This means informing the client of everything they need to know, such as the implications of getting a loan, how the product they are purchasing works, what the benefits for them would be if they pay on time, and what the payment schedule is like.
Another valuable proactive strategy is to address customer complaints as quickly as possible. Disgruntled customers are far more likely to default on payments, all the same as satisfied customers are more likely to pay on time. This is especially true if the customer is offering a valid complaint that has something to do with your product or your process, in which case you are practically obligated to rectify the issue. The less people complain about your company and the more they like about it, the more likely it is that they’ll put in the effort to pay their debts on time.
And of course, positive reinforcement is always an effective strategy. People like rewards, and rewards can often be more motivating than consequences. If there’s a good reason to pay on time aside from avoiding late fees, such as immediate renewal, clients will be even more likely to pay their debts on time, making positive reinforcement a truly effective proactive technique for your company’s collection process.