Collection System For Instalment Business
( Originally Published 1918 )
The instalment system of selling goods has made rapid strides in the last decade. Not many years ago the plan was looked upon as impracticable, but at the present time instalment houses are scattered over the entire country, and sell nearly all lines of merchandise. The whole system is merely a method of extending credit to the customer on the basis of a stated payment each week, month or quarter, as the case may be.
The method is simple; and the results, when the instalment sales are properly handled, are entirely satisfactory. Payments should be properly secured or safe-guarded and collections should be close and clean. The dealer can then estimate with accuracy just what he will receive each month, and will therefore know just what is available for the purposes of the business. This, of course, presupposes that his collections are properly kept up, and payments made according to the terms specified in the lease or contract.
Contract of Conditional Sale
The usual lease or contract signed by a purchaser under the instalment or conditional sale plan, leaves the title in the vendor until the full purchase price is paid. These contracts are in the shape of a promissory note—regularly drawn and bearing interest—with the conditions annexed.
To carry on a business successfully under the instalment plan usually requires considerable capital, as the investment in the outstanding goods is heavy. To obviate this, the contracts themselves are sometimes used as collateral security for loans. Even then it is but little less imperative to collect closely, so as to get in the money as it falls due. Not only is it bad business to borrow money when outstanding payments are overdue, and not made for lack of proper attention, but the risk of letting accounts run is serious. Every day that an instalment payment goes over its due date renders it just so much more difficult to collect.
The Collection Card
The general principles involved in making collections are the same in any line of business, instalment or otherwise. The prudent business man makes himself as secure as possible, and the only advantage the instalment vendor has is the greater security for his credits. Against this must be balanced the large number of small payments involved, and the long time necessary for the account to be paid out. Also, the character of the trade is such as to call for the closest watching and the promptest and most persistent follow-up. The collection system described in the foregoing pages can be admirably adapted to the instalment business. In such case the duplicate invoice is not necessarily turned over to the collection manager, but he is supplied with a collection card.
Handling the Accounts
The general system described in the preceding chapter is modified for the instalment business as follows:
(1) The collection manager's card is filed in a filing case or cabinet--similar to those used for the filing of invoices—under the date on which the first payment falls due, or, if the notice is to be mailed so as to reach the customer at, or in advance of, the due date, the card is filed under the proper advance date. When this date arrives, a first notice is sent, and the card is filed ahead six days. If at the end of this, time payment has not been made, a second notice is sent, and the card is carried ahead six days more. If the payment is still in default at the expiration of this time, a third notice is mailed, and the card is either filed under the date on or before which an answer should be received, or is held in a waiting file until sufficient time for an answer has elapsed.
(2) If the third notice does not bring the payment or a response of any kind, a personal letter is written to the delinquent, and his card is filed in a past-due card file or cabinet. This is of the same construction as the other file. If a reply to the personal letter is not received in a stated time, a collector is sent to interview the debtor personally and find out exactly why payment has been delayed. If the delinquent is out of town, or remote, so that a personal visit is impossible, the matter is one for further correspondence. The subject of notices, letters, etc., for the instalment business will be found treated in detail in Chapter XII, "Collection Letters for Instalment Accounts."
Suggestions for the Instalment Collector
It is particularly important that the first payments be collected promptly and in strict accordance with the contract. It is a matter of experience that more sales are lost, i. e., goods have to be taken back, through failures to get the purchaser started right on his payments, than by too close collecting.
It may be noted that when an instalment sale is made, it is well for the salesman to impress upon the buyer that payments must be made at the place of business, and that collectors are sent out only on special request. If the customers are properly educated from the start they will, in most cases, make their payments at the store, thereby lightening the labor of the collection department by just that much.
If it is found necessary to extend the time for a payment, it is usually wise to do it with an appearance of extreme reluctance, so that the customer will consider it a great favor. If this is done, he will not be nearly so ready to ask for or expect further extensions.
Frequently the instalment buyer is purchasing goods from several houses at the same time and has payments to make to all of them. In such cases, if the burden be-comes heavy for him, it is "first come, first served," the purchaser paying the most urgent demands and "standing off" the house that is lenient. It is always important to impress upon the customer the fact that the goods have been sold him on very easy terms and that he must there-fore live up to his agreement, but when he evinces a disposition to favor other houses there should be a strict insistence on payment according to the terms of the contract.
The instalment buyer usually receives his wages each week or month, and it is therefore very necessary to find out just when his pay-day occurs, so that a letter can be written or a collector be sent to see him at that time. It must also be borne in mind that the instalment customer seldom has resources on which the vendor can realize. Payment must be made out of his weekly or monthly earnings, and it is extremely difficult for him to make back payments if he is allowed to get in arrears. This is an additional reason why collections should be close; but when this unhappy condition does arise it is sometimes possible to get the delinquent to increase his regular payment each period by at least a small amount, and thus bring his account up to date. This is frequently done in-formally; but it will at times be found more effective if the customer signs a special agreement to make larger monthly payments, this agreement stating specifically that it does not change the conditions of the original contract. The debtor is much more likely to live up to a written promise of the kind than to any informal arrangement for such increased payments. A good form for such use is as follows:
I hereby agree to pay the Chicago Furniture House five dollars on the 12th day of each month hereafter, until the interest on all payments now due, and the said payments now due on a certain dining-room table, purchased by me from said house under a contract of sale dated March 1, 1913, have been paid in full, together with all regular payments accruing under said contract meanwhile, and, provided said payments are made as herein agreed, the Chicago Furniture House is to accept same and to apply them as herein provided. It is specially understood and agreed that this present undertaking does not affect the conditions of the original contract of March 1, 1913, in any way.
(Signed) JOHN H. MCCULLOUGH. Urbana, Illinois, April 15, 1913.
Special Requirements of Instalment Collections
The instalment plan appeals with special force to the improvident, and there is no doubt that the instalment buyer frequently purchases far beyond his means. It is for him an easy means of discounting the future. This is one of the bad features of the system. An article that can be bought for eight dollars down and eight dollars per month for three or four months, appears to many purchasers as merely an outlay of eight dollars; and they fail to consider whether they will be able to make this payment month after month as it falls due.
For this reason, and because of the general nature of the business, instalment accounts must be followed with tireless energy. This is the great secret of success with the instalment business. No matter how regular the payments, the collection manager must not be lulled into a condition of assurance and neglect. No delay, be it even for a few days, must pass. unnoticed. A debtor may be good pay for several months, and then, through loss of interest in the purchase, or loss of position, or through some unexpected call upon his resources, or perhaps through injudicious purchases, become very poor pay.
The work of collecting instalment payments is an unsatisfactory one in some ways, and a collector always will have bad accounts. These should, however, be reduced to a minimum, and for the encouragement of the instalment collector it may be said that a man who thoroughly understands and is successful at this work is in much demand, and under any ordinary conditions need never be out of profitable employment.