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Back in 2002, my Citibank credit card client called me with a new and extraordinary problem: In light of the post-9/11 recession, Citi was having much more trouble collecting on past-due accounts than in previous economic downturns.

One reason was CallerID; most non-payers now had it and became quite expert in using it to avoid collection calls.

But another reason was what I call “debtor empowerment.” Instead of taking responsibility, people now felt justified in blowing off a collector because the debt was someone else’s fault – the creditor, their ex-spouse, the government…or just “the economy.”

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So we did tons of research on bad payers. Especially valuable: interviewing collectors to discover what offers, words and phrases worked best against this new breed of empowered debtors.

Then we tested a number of direct mail letters to those hard-core non-payers. Here’s what we found:

  • The #1 winner in testing was one headlined with the words, “Settlement Offer.”
  • Settlement offers pulled up to 10% response: ten-times a regular collection letter.
  • A settlement offer responder was twice as likely to make an immediate payment.

Why does it work?

First – the typical delinquent payer has several unsatisfied debts and can’t afford to pay them all, but often does give priority to the creditor willing to work out an arrangement.

Second – even if they might be irresponsible, most non-payers are not sociopaths; they feel bad about stiffing you, and would prefer to make good.

Third, thanks to eBay and Amazon, everyone is shopping for a deal today, even on the money they owe.

Here are 3 lessons for a small business owner:

  1. Make a settlement offer on hard-core delinquent accounts.
    A settlement means accepting less than the full amount due, and it’s a limited-time offer. If not paid by the deadline, the balance reverts back the full original amount, plus interest and penalties.

  2. Don’t fight “discounting” your receivable.
    The truth is, once an account is several months’ delinquent, you are extremely unlikely to ever collect in full.
    If you use an attorney or collection agency, they usually take 20-30% of whatever comes in -- even if the debtor makes just a partial payment. So you might end up with 50 cents on the dollar or even less.

  3. _Accentuate the positive. _
    While it’s understandable you’d want to make threats…they don’t work anymore, because the debtor feels in control!
    So instead of, “you’ve been bad, and we will punish you,” the more effective line is, “we know you want to make good, and here’s how we’ll help.”
    Leave that negativity for the end of the letter: e.g. “Let’s settle now, before we need to take it to court, tack on attorney’s fees and put a judgment on your record.”

Settlement offers: now there’s a new app for it – and right now it’s free!

In addition to being a freelance marketing consultant, I’m also acting Chief Marketing Officer for a new internet startup designed to help small business settle with their non-payers.

Best of all, as a Freelancers Union member, you can use it free during our beta test period. Go to www.settl.it to find out more about this new cloud-based tool to help you make, negotiate – and immediately collect on – settlement offers. Please feel free to share your feedback and experiences with us!

Peter Blau is acting CMO of settl.it and a freelance marketing consultant. His company name is Customer Growth, LLC.