Forgiving Debts - Paddi Lund Style!Hi there!
I hope you're enjoying the Paddi Pages! In Issue #6 we talk about debt and Paddi's unusual approach to the problem.
Just to recap, one of Paddi's 7 Key Frustrations was his ballooning accounts receivable. In Customers Who Love to Pay (see excerpt below)you'll read all about how he turned that around, but that didn't help much with his current outstanding debts! Read below how Paddi removed this frustration in a very creative way ... and in the process discovered a very effect (if not unique!) method of debt collection!
Forgiving Debt - Paddi Lund Style! [Word Doc, 33kb]
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Solutions Press Business Publishing
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The Secret World of
Customers Who Love to Pay
Chapter 5, page 32...
The longer a bill is owed the more likely it is that your customers will feel unhappy about what you have given to them.
You would think that the longer someone owed you money the greater the chance you had of being paid. In fact, I found that quite the reverse was true. If the person did not pay on the day they became indebted to me, my chances of being paid seemed to decrease with each passing day.
Think about it. Even if a customer is initially happy with their transaction they made with you, they usually become more and more dissatisfied as time goes by. Why is that so? Well, I think their internal dialogue goes something like this:
I am a good person - I always pay my bills - yet I have not paid this one. There must be a good reason why I have not paid. What could it be?
And so start the negative thoughts about what you supplied. And eventually they come up with something that they can feel unhappy about so they can justify not paying your bill. Simple!
I am sure you can see that this state of affairs is bad for you. You may also like to consider that it is bad for your customer.
Assuming you have supplied something that is worthwhile for them, they have become dissatisfied with something they should be enjoying. And their relationship with you, a good supplier, has been damaged. All this because they have not paid their bill on time.
The more quickly you have customer's money in your bank account the better for all.
Early on in my business career I thought that people didn't have to be asked for their payment face to face. I waited for them to offer to pay. If they didn't I sent a bill.
I sent out bills with labelled boxes that said 40, 80, 120 or days past due. And I asked the receptionist to tick the appropriate box. Little wonder that people felt they could go to 120 days when there was a box for the purpose.
If they didn't pay then I sent them progressively more demanding and nastier toned letters (this was called Dunning) until they either paid or I put them in the hands of my debt collectors. These people were then referred to as "Bad Debts".
Usually, after a while I became incensed by the fact that someone owed me money for so long and I threatened them with incredibly unpleasant legal actions.
I employed various lawyers who always advised me that my case was just and that I would have my money quickly. And so I pursued my "bad debts" through the courts.
And the result was always the same. Either I didn't get my money or, if I did, there was only just enough to pay the legal costs.
If I had put the same effort into running my business and avoiding future bad debts, I would have done far better economically, and I wouldn't have had heartburn whenever I thought about the money I was owed.
When I started to expect, ask for and receive payment at the time of rendering my services I solved a lot of these troubles.
I also decided that when people didn't pay their bill it was my responsibility. And if someone owed me money the situation was always one of the following:
- They meant to cheat me.
- They were too poor to afford my service, or
- They didn't value my service and so begrudged paying me.
In each case I decided I should forgive the debt - it was just not worth having bad press. And I should resolve to choose my customers more carefully in future.
For a while I even went further than this.
|Check in the Mail|
|Once I had decided I didn't want any more bad debts, I decided to forgive (and forget) about the ones that were on my books. So the best way I could think to do that (apart from simply putting it in the drawer and forgetting about it, which wouldn't make either of us feel any better) was to send out a letter to the debtor including a cheque (my own) made out to myself for the whole of the bill.|
|All my defaulting customer had to do was mail the cheque back to me to cancel their debt.|
|In this way they recognised my generosity (sic) and sometimes it cancelled out their bad feelings towards me. But more often than not, the cheque I received back in the mail was theirs, not my own. I wished at the time that I had done it sooner!|
|I haven't had to do this for quite a while because I haven't had any bad debts in a long time.|
Be more pleasant to people when they owe you money, not less.
And so, gradually, by trial and error (often with more error than trial) I gained a little financial wisdom.
More specifically, I had learned that if I wanted to persuade my customers to pay me, I not only needed to set my price fairly, but I also needed to be sure that I asked them to pay in just the right way and at the right time. In this way I would secure their money without a lot of messing about with bad debts.
That however only guaranteed that I had money coming in regularly. It did not ensure that I made a profit!
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