In a data-driven world, managing business receivables centers on predictive analytics and digital outreach systems that target past-due accounts at the earliest possible moment. Yet no matter how closely your financial team monitors relevant KPIs, some accounts will ultimately fall behind.
Emotional responses and outcomes
Anger and frustration are common responses when accounts receivable (AR) results go south. It’s nearly impossible not to feel irritated when you witness the impact on cash flow and staff time, not to mention the continuous drain on working capital needed for healthy growth.
However, the angrier your financial staff becomes, the less likely they are to find profitable solutions. Our findings show that when emotions run too high in collections cases, the chances of successful recovery drop by nearly a third.
Human factors in debt collection
You may feel your financial staff is level-headed enough to handle bad debt without letting emotions get in the way. But the truth is, they’re human. Non-paying clients have a whole arsenal of infuriating tactics – and as balances roll past the 60-, 90- and 120-day mark, even the most rational individuals can lose their cool. In closely held firms, the debtor may even be a family member, former spouse, partner or friend, making the situation even more emotionally charged.
The science of judgment and decision-making
If it seems I’m advocating for robotic responses to a grossly unfair situation, let’s go back a step. Successful debt collection is always a human endeavor.
Consider what former FBI negotiator Chris Voss – who authored a best-seller on negotiation tactics – says about finding solutions in extreme circumstances: “The goal is to gently show people reality without them feeling cornered or attacked.” In any debt collection scenario, this means managing our emotions and responding to the debtor’s anxieties.
Social scientists who study judgment and decision-making remind us that no negotiation will ever be free of human emotion. Good decisions depend on deep instincts, as Malcolm Gladwell describes in “Blink: The Power of Thinking Without Thinking.” We need anxiety to spur us forward; indifference to rising AR losses would leave us unmotivated to find solutions.
Newer studies show that resolving business conflicts calls for emotional intelligence (EI) – the ability to feel, manage and harness personal feelings in resolving differences with wisdom and empathy.
Principles for successful debt recovery
- Consider the person behind the debt. Debtors usually face tremendous stress. Struggling companies are treacherous places to work, and the people in accounts payable likely feel extreme tension as they rob Peter to pay Paul, wondering whether they’ll have a job in six months.
Their pain does not call for what business writer Kim Scott has termed “ruinous empathy,” but for respectful truth-telling. It’s in the best interests of all to find a solution – and fast.
- Prepare thoroughly. Analyze all of the information before engaging a non-paying client to anticipate any objections and navigate any disagreements that can pull negotiations off-course. Both sides need creativity to resolve their shared problem – and stress reduces our ability to think outside the box.
In her book, “Don’t Leave Money on the Table: Negotiation Strategies for Women Leaders in Male-Dominated Industries,” negotiation strategist Jacqueline Twillie offers a preparation checklist known by the acronym LATTE: look at the details; anticipate challenges; think about the walk-away point; talk it through; and evaluate options. The fourth point – discussing the case with a colleague during the prep stage – emphasizes the value of teamwork in problem-solving.
- Work from a place of curiosity. Expert negotiators suggest asking neutral questions that reflect an interest in the facts (and also in reducing pain all around). For example, Voss recommends asking, “How can I make this feel better for you without making it worse for me?” Another favorite: “What would it take to make the proposed deal happen?”
- Use labels to affirm understanding. This is an example of what judgment and decision-making experts often call “tactical empathy.” When you label the situation, you show your understanding of the obstacles to settlement: “What I’m hearing is that a sharp downturn in sales has really hit hard, so you’re not sure about the deal we’re proposing. Is that right?”
- Ask questions that prompt “no” answers. This counterintuitive move is an essential in Voss’s negotiating toolkit. It works because the power to say no creates a temporary feeling of control and safety. Questions can be as simple as, “Is now a bad time for you to discuss this?”
Or, as things progress, “Is this a ridiculous idea?” or “Have you given up on finding a solution?”
- Reframe your vision of winning. This might be the toughest test of collections. Do you feel compelled to reject a proposed settlement mainly because you hoped to recover much more? Do you feel incensed that, after months or even years of effort, you can’t recapture the full balance?
Both positions are driven by disappointment. They’re both perfectly understandable. But a good-enough offer today is far better than waiting for a fantasy offer that will likely never come.
