I recently visited a client and heard firsthand a story that explains the limitations of accounts receivable automation. I now call this my “Broken Gnome” story.
As background, along with our finance and automated accounts receivable solutions, smartAR also provides a “Virtual” Ledger Management (VLM) service. Essentially, VLM does the manual heavy lifting of an accounts receivable job for a client. Importantly, we make all the slow payer follow up calls for clients (on their behalf) but generally use smartAR technology for email reminders, text message follow ups etc.
This particular VLM client installs home insulation, which is part subsided for New Zealanders by a government grant with a balance that needs paying. Our client had a homeowner who owed them $2,500.
She had not paid the invoice by the due date, so received a phone call from our Virtual Ledger Manager. The overdue account receivable conversation went something like this:
Cindy: Hi, it’s Cindy calling from ABC Insulation. It’s just a quick courtesy call to follow up on an invoice that is now due. Can you recall receiving our invoice?
Homeowner: Yes – but I’m not paying it.
Cindy: OK. Can you please tell me why?
Homeowner: You broke my gnome! I’m not paying you to break my gnome.
Over the next few minutes Cindy got an earful. She was told how the two installers had done a “pretty good job” but had broken the gnome. Not only that but they had not told the homeowner. Cindy was told it was a prized gnome, with sentimental meaning to the lady that owned it.
The lady had been shocked when she found it “smashed to pieces ” in the garden. She was not at all in the mood to pay the invoice for the actual work done.
Have you ever been on the receiving end of a barrage like that?
You just have to listen and display empathy – which is just what Cindy did.
The gnome story reminds me of the central purpose of the accounts receivable process.
No – it’s not to get you paid, that’s the outcome. The accounts receivable process is to triage your credit clients into three groups – those that:
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Can Pay,
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Can’t Pay, or
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Won’t Pay
Then manage each client group accordingly. (insert Can/Can’t/Won’t picture)
Frankly, if an overdue client holds a legitimate reason why they won’t pay you, there is absolutely no point chasing them with automated emails, text messages or even snail mail demand letters.
“Won’t Pay” clients are generally emotional (angry, frustrated, annoyed) and rarely respond to your quite reasonable requests. Instead, they wait. They seethe. When you finally speak with them be prepared as they will unload on you. Time does not heal these wounds. It’s best to find these clients early on in the Won’t Pay cycle.
“Can’t Pay” clients are similar. They will duck and dive and try to buy time while they hope their finances might improve. These are debtors that treat you like a bank with free interest. Passive approaches with low “relationship tension” (i.e. using automated emails/text messages/letters) are generally ignored – meaning you waste both money and time.
So where does that leave accounts receivable automation? When does it work best?
Well, there are lots of great opportunities to automate within the accounts receivable process. And you should do so. The primary focus is prior to due date to find those clients that “Can Pay” – reminding them payment is due and by making sure payment is seamless & frictionless. (e.g. click to Pay Now).
If you lead a professional service business with larger amounts owing (e.g. over $1,000) and client relationships have some professional intimacy (e.g. accounting, law, talent recruitment etc) the first follow up should be a customer service check-in.
Why? Because people like Cindy can listen empathetically and “defuse” any immediate client concerns. The tone of these early calls is firmly a customer service call NOT a debt collection call.
Every business owner or senior manager reading this knows that gnomes get broken – things can go wrong in the service delivery process. However, we have a real chance to shine when we put them right.
In this instance, after hearing the customer out, Cindy undertook to look into the issue of the broken gnome. It turns out the customer was completely right. The insulation business owner happily replaced the gnome (with two more) and the previously grumpy customer was completely won over by his team’s apologetic charm and atonement.
Question to ponder:
When does your accounts receivable process identify when your team might have “broken a gnome”? And does the automation of your accounts receivable process allow for this?