"Checks by Phone" Streamline Credit and Collections
"Prepay" is a word customers hate to hear, even when you offer price incentives. But sometimes risks are just too high to do business any other way. Here's a newspaper credit chief's innovative solution to the problem that could have applications in many other industries. After suffering outsized bad debts with multi-insertion classified ads, The Baltimore Sun Co. (Baltimore, Maryland) decided on a drastic measure. All of these advertisers would have to prepay, either by credit card or by check at the paper's office. They got a premium rate in return, but some were still unhappy.
"Not everyone had a credit card or wanted to use a card to purchase advertising," reports Credit Manager Kerry O. Kelly, CCE. "These people also didn't like the idea of having to visit the office in person to prepay their ads." So last year, Kelly (who was recently named Credit Manager of the Year by the Advertising Media Credit Executives Association for his service to the organization as well as for his innovative credit and collections programs) came up with a third option: "checks by phone" (technically called a "direct draft" or "direct debit" system). Here's how it works: 1. When an advertiser calls to place multi-insertion classified ads, the ad taker explains that the ads must be prepaid and offers the three options (credit card, in person, or check by phone). He or she also explains that these ads offer a premium rate, since they must be prepaid. 2. If the advertiser arranges to pay by phone, the ad taker asks the advertiser for two numbers from the advertiser's checking account:
- the ABA number (which identifies the specific bank on which the check is drawn), and
- the advertiser's checking account number at that bank.
3. To protect the advertiser's financial security, no one outside the credit department has access to the information once the ad taker enters these numbers into the computer. 4. Every 45 to 60 minutes, the credit department downloads all the checking information from the advertising department computer system into a credit department PC, and then transmits the data electronically to The Baltimore Sun's bank. 5. When the bank receives the data, it credits The Baltimore Sun's account and arranges to debit all of the advertisers' accounts. It then sends a tape of the transactions back to The Baltimore Sun for its records. 6. The cash is applied to The Baltimore Sun's account the following day. "We handle about 650 transactions a week this way," reports Kelly. Approximately 70% of the transactions involve consumer advertisers. The other 30% involve commercial advertisers. Benefits
While the "check by phone" program does not provide guaranteed funds (i.e., a customer's check can still bounce), the program provides substantial benefits. 1. The system is extremely cost-effective, and it is completely transparent and paperless. "No one has to physically handle anything," says Kelly. This saves a substantial amount of time, effort, and cost, in that:
- There are no bills to be sent out.
- There is no mail to open (with advertisers' payments enclosed).
- There is no need to encode checks and post balances.
- There is no need to prepare deposits for the bank.
- There is no need to place follow-up collection calls.
"In fact, the cost of the electronic transaction is actually less than the cost of the stamp we'd have to put on the envelope of the first bill," continues Kelly. 2. The paper has been able to cut its bad debt losses with this type of advertising by over 50%, since advertisers who never planned to pay the newspaper when they place the ad in the first place will refuse to provide their checking account information over the phone. And the paper can refuse to accept the ads. 3. The program can also be used for collection efforts with advertisers in other ad programs, where payment is still handled by "a check in the mail." "If an advertiser reports that his check has been 'lost in the mail' a few times, we can ask for payment by phone," explains Kelly. If the advertiser really does want to clear up the collections problem, he will provide the information. If he has no intention of paying, he will not provide this information. This quickly alerts the credit department to a potential problem. Recommendations
If you're considering this type of program for your customers, Kelly offers three recommendations: 1. Work only through a bank. While Kelly looked at some other independent third-party check-processing firms, he was never comfortable with their ability to guarantee the security of advertisers' checking account numbers and the paper's checking account information. In addition, their fees were higher than what the bank charged. "Personally, I'd never work through anyone other than a bank," he says. 2. Train the employees who will take the check information over the phone to record the correct numbers. "There are a lot of numbers on checks, and you need to make sure they know how to ask for the ABA number and the checking account number, and how to know whether they are getting the right number of digits," he notes. (The total number of digits is two less than the total number of credit card digits.) 3. Finally, train the employees to help customers feel comfortable with the program. Many customers may not want to provide checking account information over the phone. Kelly identifies four points you can mention that should get them to cooperate:
- The paper would eventually have access to the information if the customer mailed the check anyway.
- The customer, not the paper, initiates the call. While it is never smart to give checking account information over the phone to someone who calls you, it is the customer, not the paper, initiating the call, so the customer knows he or she can trust the paper not to write the check for over the agreed-upon amount.
- Balancing the checkbook is easy. When the customer places an ad and pays by "check by phone," the ad taker advises the customer to make a notation in his or her check register for the amount of the check and the number of the next check in the checkbook. The ad taker then instructs the customer to tear up the physical check with that number in his or her checkbook. When the customer receives his or her monthly statement and canceled checks, the customer will also receive a slip of paper (a draft) that resembles a check. This check will have the appropriate check number on it, as well as the amount. There is no cost to the customer for this process.
- Finally, providing the checking information over the phone saves the customer from having to make payment in person at the paper's office.
Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.
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