Building Customer Relationships (#118)
/In this podcast episode, we talk about how to build the right kind of relationship with customers, in order to improve collections. Key points made are noted below.
This is a rather odd episode, because it relates National Signing Day to collecting overdue accounts receivable. So, what on earth is National Signing Day? In the United States, this is the first Wednesday in February, and it’s when top high school athletes sign a letter of intent to play sports in whichever college has been recruiting them. Usually, we’re talking about football players, and by football I mean the American version; that’s where large people in pads and helmets run into each other. This is becoming so big that one of the cable sports networks runs coverage of National Signing Day for the entire day. For those of you outside of the United States, you’re probably shaking your heads and wondering about those crazy Americans – and, you’d be right.
Now, the coaching staff of a college football program is partially judged on the proportion of top recruits that they can pull in on National Signing Day. Of course, part of their success is based on the reputation of the school’s football program, but a very large part of it is based on personal relationships between the coaches and the recruits. This isn’t something that’s developed overnight. Sometimes a college has to build relations for a long time before a recruit is comfortable enough with them to commit on Signing Day.
The Need for Good Customer Relations
You may be wondering how on earth I’m going to link this admittedly overblown event to collecting accounts receivable. But the point is pretty simple. If a customer is having trouble paying its suppliers, and you could see who they were paying first, I’ll guarantee you that they pay the people they know before they pay anybody else. In other words, and just like National Signing Day, the relationship is incredibly important. This has a bunch of implications. First and foremost, if you want to build relationships, it’s pretty tough to have a industrial-scale collections department where anyone is allowed to contact any customer. Instead, you have to assign specific collections people to specific customers, and you have to commit to keeping those assignments running for a long time, probably several years at a stretch.
And on top of that, you need to winnow out any collections people you have who are rude and abrasive, and instead put in people who are a lot smoother, and who really like to chat on the phone. By doing that, you’re switching from beating on customers to building relationships. Now if you do this, don’t be surprised if it takes a lot longer to contact a smaller number of customers, and that’s because you’re trying to lay the groundwork for a relationship – and that takes time.
The Need for Different Performance Metrics
Also, you need to change your performance metrics for the collections staff, so don’t track how many seconds they’re on a phone call. Instead, the only metric that counts is whether they can collect the cash, and it may take months before that metric starts to improve.
The Need for a Different Style of Communication
If you take this approach, the way in which you communicate with customers has to change, too. Anything that allows you to get warm and fuzzy with customers is in, and everything that seems impersonal is out. That means you avoid e-mails and faxes and dunning letters like the plague; and instead, use the telephone – and that’s the talking part of it, not the texting part.
And that may mean visiting customers – yes, in person. If there’s any way in the world that you can get in front of your counterpart in the customer’s accounting department, then do it. This absolutely does not mean sitting across from each other and hashing through a bunch of issues. You may eventually get there, but it really means going out for lunch together and maybe talking about anything but business.
If you can build on that relationship over time, then when the time comes to ask for payment on an invoice, you call them up, you ask for the payment – absolutely never demand it – and more than likely all of that advance work will pay off, and you’ll get paid. And if you don’t get paid right away, don’t be surprised if they at least give you the inside scoop on exactly why they can’t. And that’s valuable information.
Now this doesn’t just mean that the collections people at your company get to know the payables people at the other company. You can also work it at the controller or CFO level. These people tend to stick around longer, so it’s easier to build long-term relationships between controllers or CFOs. And if you can get a customer’s controller to authorize a payment, that’s just as good as getting a payables clerk to do the same thing.
Parting Thoughts
This approach isn’t going to work in all cases. If your company deals with thousands of customers, with each one owing just a little bit of money, then good luck with building relationships! There’s not enough time in the day, so don’t bother. Instead, think like those college coaches – there are only a couple of thousand recruits to deal with in the entire country, so they focus on a small number that are really important. You can do the same thing, and in a business, that means building relations with the biggest customers.