Author Archives Marilyn Miller

Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Seven

Posted by Marilyn Miller on August 16, 2019  /   Posted in Uncategorized
What information does a debt collection agency need to collect a debt?

I am often asked by new customers what type of information I need. The short answer is, “everything you’ve got”.  

More specifically:

  • Detailed invoice detailing all charges and payments that documents the amount you want the debt collection agency to pursue. A simple statement with just a total is not enough. Detailed invoices help the debt collector discuss the debt in question. In addition, a detailed invoice will be needed if a consumer disputes the debt. By law, if a consumer disputes a debt and asks for verification, the debt collector must send it within 30 days. 
  • Contract or any agreements signed by debtor agreeing to pay. Send a signed estimate or work order, if you have one. 
  • Any and all information contact information. Even if the information is no longer valid, your debt collection agency can research and find new information.
  • Any correspondence, especially regarding a dispute.
  • Any other information that will assist in the collection of the debt, such a copy of a bad check.
  • Also, if there are specific circumstances regarding the origin of the debt, detail them. For example, if the bill is the result of an emergency call in the middle of the night, that is significant. 

The better the information you send the debt collection agency, the greater their chances of success.

If you learn new information, pass it along to a debt collector. A debtor obtaining a new job or moving to a new state could help the agency determine a more effective strategy to get you paid.

Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Six

Posted by Marilyn Miller on August 14, 2019  /   Posted in Uncategorized
What is the FDCPA and does it apply to creditors?

The FDCPA, or Fair Debt Collection Practices Act is a federal law that governs the behavior of third-party debt collectors attempting to collect consumer debts.  It does not apply to original creditors. The FDCPA details abusive, misleading and unfair practices, gives guidelines for debt collector communication. It assigns civil penalties for violations of the law. There are also state versions of the law, based on the federal model.

 

The FDCPA is a very good law. Consumers need to be protected from unprofessional collection agencies. Just google “collection agency scam” and you will find a host of horror stories. Some of the news reported is not done by collection agencies, but people trying to scam seniors pretending to be the IRS, and so forth. Nevertheless, there are bad collection agencies out there – just as there are bad players in every industry. There are also many reputable collection agencies working hard to return money back to business owners and keep the economy flowing.

Collection agencies have made significant changes to their hiring and training practices to comply with the FDCPA. These changes have helped consumers. It is my opinion, however that the law is not always used for the best of purposes. Let me give you an example.

Years ago, we received service of an FDCPA lawsuit. The plaintiff was an inmate in federal prison in Pennsylvania, alleging violations of the FDCPA for debts from various credit cards when the plaintiff lived in Massachusetts. Now, I have never worked or lived in either Pennsylvania or Massachusetts and I have never collected consumer credit card debt. The plaintiff’s name was not in our database. So naturally, I knew the suit was baseless, but since the suit had been filed, I had to respond. Several other local agencies were also named in the suit, and I called two of them. I was horrified to learn that even though, like me, they had never attempted to contact the plaintiff, and knew the suit to be a scam, they had decided to pay the amount demanded – $2,500.

Why? Simple economics. You see, when a business is sued, the business owners cannot represent the business. They must hire an attorney to represent them in court. The cost of hiring an attorney might well exceed the demand amount. They considered the payment a cost of doing business. Well – not me – I never pay ransom!

I contacted the prison authorities who referred me to the FBI. As luck would have it, I had a relative who was a Pennsylvania-admitted attorney, so I was able to get a letter done for free, but I would have paid an attorney, just to make sure the scam was exposed and ended.

The inmate lawsuit is an extreme example, but there are also examples of collection agencies being sued for minor violations such as one word being left out of place in a letter. Some court decisions have been totally contradictory – such as one court ruled that agencies must leave certain language in a voicemail and another court finding that same language to be disclosure of the debt to the third party, which is prohibited by the FDCPA. In some cases, the attorney gets a large award for fees, while the consumer gets only a few thousand. Still others might use the FDCPA to get out of paying the debt – not at all what it was intended to do!

Penalizing agencies for hyper-technical violations takes time and energy away from prosecuting the bad players. Consumer collection agencies walk the “damned if we do, damned if we don’t” tightrope.  Just as unscrupulous agencies ruin it for the good ones, bad litigants ruin it for those who need protection.  Many agencies no longer collect consumer debt. Third party agencies return over 50 billion dollars back into the economy every year. We know you love to hate us, but if we don’t get businesses paid, then businesses cannot grow. Prices go up. Employees are laid off. No one wins!

However, just because the FDCPA does not apply to original creditors does not mean they are free to be abusive or threatening, as much as they would like to be. It is always best to keep it professional, and get expert advice when needed. 

Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Five

Posted by Marilyn Miller on August 12, 2019  /   Posted in Uncategorized
“How does the debt collection process work?”

Many of my clients have never hired a collection agency before. They are curious to learn how the process works. To me, this question is a good sign, because it shows that I have a customer that wants to partner with me for optimal results.

The debt collection process is at the same time simple and complex.

Your customers will receive an initial notification of debt, which will include basic information on the debt and how to pay it. For debts owed by consumers, the letter will advise consumers’  rights if they wish to dispute the debt. Telephonic contact usually works in tandem with written notice.  So far, the process is simple, and some people pay quickly after being sent to collection. If they do not, the process becomes more complex.

Debt collection involves a good deal of negotiation and documentation. If we convince someone to enter into a payment plan, we always document that plan. We manage those payment plans, and follow up on missed payments.

Often, we have to research to find new contact information on debtors to find a new phone number or address. This research, called “skip tracing” is key to successful debt collection. Research is also used to determine if a debtor has assets to pay the bill, if they have other pending litigation and to find other information that will drive the strategy to get the debt paid.

Reporting to credit bureaus could be another part of the debt collection process, but it is certainly not the most important part.  A consistent and persistent effort that combines different actions is what works.

You can and should be part of the debt collection process, even after you have submitted the accounts to your agency. You should stop sending statements and direct any inquiries to the agency. If you find out new information on the debtor, make sure to pass it on to the agency.

 

 

Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Four

Posted by Marilyn Miller on August 05, 2019  /   Posted in Uncategorized
Why did they pay you and not me?

The debt collection process involves a good deal of focus and persistence.

Debt collection is what I do for a living. I have the luxury of being able to focus on it. Business owners have no such luxury, as they wear many hats.

 

 

 

 

 

 

 

 

 

It is all too easy to get caught up in day-to-day operations or customer service, and neglect aging accounts receivable.

Many small business owners have designed an in-house collection process and use it well. They call delinquent customers and send them a well-worded collection letter.  Their efforts produce results, but since they have other things to do, they can only do so much.

Successful debt collection also involves escalation. Again, many business owners use an escalating process involving senior management before sending a file to a collection agency. And again, it works sometimes.

The key is to continue the escalation by hiring a collection agency. A collection agency can move the process to the next level. If your customer cares about impact to their credit rating, they might just pay when contacted by a collection agency. They may pay the bill after receiving multiple collection calls, just to make us go away!

Sometimes, we use our best stuff, and still cannot get someone to pay. In those cases, I may make a referral to an attorney for litigation. And sometimes, they pay when they get served by the lawsuit, causing me to ask, “Why did they pay my lawyer and not me“?

The answer, of course, is escalation. Ask yourself, “What will motivate this person to pay?” and DO THAT THING!

 

 

 

 

 

 

Debt Collection FAQ: Frequently Asked/Answered Questions – Part Three

Posted by Marilyn Miller on August 02, 2019  /   Posted in Uncategorized

Debt collection is much more effective when the underlying debt is based on a contractual agreement. Contracts do not have to complex. A simple statement of your payment policies could be enough. A contract needs to be in writing, and agreed to by customer, in writing, before the transaction.

So when I am asked..

“Can I add collection costs onto the debt?”

…the first thing I do is look for a signed customer contract. Your ability to add costs onto a debt will varies depending which state you live in, but without a contract, your chances to add or recoup them are limited, if not non-existent. 

Some small business owners believe that asking a new customer to sign a payment agreement/contract is starting a new relationship on a “negative” note. Not at all! In fact, communicating your payment expectations is a very positive start. 

As I mentioned, a contract does not always have to be a complex and lengthy document. Even an email with the basics can work in some cases. The important thing is that the customer acknowledges their agreement, because contracts must be bilateral, that is, agreed to by both parties. 

If you want to pass on any collection costs, your contract should mention it, something like, 

“In the event of non-payment, you agree to pay all costs of collection.”

Once again, state laws vary regarding collection costs, but if your customer agrees to them, you are off to a good start.

If you believe that your oral agreement covers you, or if you are “too busy” or unwilling to get customers to agree to a contract, you may suffer the consequences later. You can design a process to streamline the contractual process. It can and will help maximize your collection efforts, and reduce your over all cost of collection.

Try it!

 

Debt Collection FAQ (Frequently Asked/Answered Questions): Part Two

Posted by Marilyn Miller on July 24, 2019  /   Posted in Uncategorized

Debt collection can appear to be a difficult and frustrating process. While there are certainly difficult instances, the process itself is actually quite simple. It simply involves commitment to a simple consistent process.

Most of our day is spent attempting to contact debtors on behalf of our clients, in order to convince them to pay their bill, or to enter into a payment plan. We also research files for new contact information, or to find assets. The research aspect of our business is commonly called “skip tracing“.

Too often, I am asked by my clients to exact revenge on non-paying customers by “harassing” them, and “ruining their credit”. We can and will do neither.

We are not in the revenge business. We are in the recovery business. Harassing a customer is a violation of the FDCPA, a federal law which protects consumers from abusive debt collection practices. And as respects “ruining” anyone’s credit, reporting one debt is hardly going to do that.

British poet George Herbert said, “Living well is the best revenge”. When it comes to debt collection, getting paid is the best revenge.

Keep your focus on recovery. You have already suffered a loss when a customer does not pay you. I often hear from my clients, “I do not want them to get away with not paying me”. The sad truth is that if you are calling me, they already have gotten away with it, and we are in recovery mode. We are going to work hard to recover as much money as we can, but you are starting with zero. In this case, something is better than nothing. 

I get it. I know it stinks when you are not paid. But if you focus on the anger instead of on working with your collection agency to recover as much as you can, you are not going to make progress.

 

Debt Collection: FAQ (Frequently Asked/Answered Questions) – Part One

Posted by Marilyn Miller on July 22, 2019  /   Posted in Uncategorized

Debt collection is my business. I help small business owners when they do not get paid. I like to think that I also assist my customers with their credit practices. Truth be told, the better job they do, the easier my job can be.

Still, I continue to hear the same questions about debt collection and small business credit practices. So, I thought I would list them one more time.

Question: Can’t you just lien their home?

Answer: A lien is a record placed against a piece of property that can prohibit the sale of said property until the lien is released. In most cases, it means that the underlying debt gets paid. So it would make sense to put a lien on someone’s home to make sure you get paid, right?

No, wrong. 

You cannot file a lien against a piece of property unless you have a legal right to do so. 

Most of time when my clients ask this question, they are not referring to a mechanics lien, which can be placed on a property when the contractor does not get paid. They are only valid for a limited time, usually 90-120 days, depending on the state. To keep this type of lien in place, you would file a court action and obtain a court judgment. And again, this type of lien applies only to contracting work – repair or improvements to fixed property.

A judgment is a decision by a judge in a court of law. If you obtain a judgment in your favorite, then you have the right to file a judgment lien against a piece of real estate. The lien stays on the property until you release it. So, sit back and relax and one of these days, you will get a phone call from the property owner (your debtor), who will pay you in full in exchange for a release of lien, right?

Well, probably.

Before you file a court decision, do some research. Make sure that the person you are suing actually owns the property. Determine, as best as you can, if there is enough equity, or value after mortgage or any other liens, to pay your debt.  Make certain that the property is not in foreclosure. 

So while judgment liens can be a great way to secure and collect money owed to you, you have to make sure you use them in the right way, and in the right circumstances. 

 

 

Debt Collection Fees: How Much Will They Cost Your Business?

Posted by Marilyn Miller on July 19, 2019  /   Posted in Uncategorized

Small business owners everywhere are looking to reduce costs and improve efficiency in their companies, and recover money owed to them. Some business owners just write off their bad debt hoping receive favorable tax treatment, but this is a big mistake since most small businesses are on a cash accounting basis, and there is no tax benefit for bad debt write off. The goal is recover as much money as you can at the lowest cost to you. But how do you do that?

Companies should definitely try to collect all they can themselves but waiting too long to pursue bad debt can also cause problems. After two or three collection letters, the file should be turned over to your collection agency.

The cost of a collection agency can vary. Collection agencies get paid in one of two ways: flat fee per file or contingency. Flat fee charges can work for some businesses, but usually only cover a certain time period, or cover limited services. For example, you pay 29.00 per file and the collection agency sends one letter and makes a few phone calls. Per file fees debt collection fees are based on the collection agency’s estimation that some files will pay quickly.
There are two main issues with the flat fee approach to debt collection costs. First, is often only available to companies that send large numbers of files to collections monthly, such as a large medical group. Secondly, services that are part and parcel of the collection process are probably going to cost extra. Over half of accounts sent to collection need some type of research to find new phone numbers or addresses, and research will not be provided on a low fee file. So, while these rates are attractive at first glance, they may not be the best option for you, especially if you have already done some in-house collection.
The flat fee approach is fine for “low hanging fruit”, but you can usually collect those on your own. What happens to the tougher files? They are either parked on a credit report, where they will languish, or you will be asked for an additional fee for further collection activity.
The most common way collection agencies are paid is by contingency, which means that the collection agency gets paid no money upfront, and is compensated with a percentage of sums collected. The debt collect fees normally vary based on its “age” (how long outstanding). Contingency rates vary from 25% (or less) on debts that are under 90 days old to 50% (or more) on debts that are over a year old. Contingency rates should include the full range of collection services you need: research, credit reporting, legal fees.
One of the most effective ways to minimize your cost of collection agency is to use a solid customer contract that passes on some of the cost of collection. Many states allow some or all of the costs of collection to be passed on to the customer if (and only if) the customer agrees to it beforehand. Check with your attorney to find out how your contract can help you with collection costs.

Reducing the Cost of Collection with a Customer Contract

Posted by Marilyn Miller on July 15, 2019  /   Posted in Uncategorized

Reducing cost of collection is important to businesses. It is bad enough to have a customer default on paying you. When you have to send a customer to a collection agency, it adds insult to injury.

My first suggestion would be to shift your thinking from holding on your receivable to recovering as much as you can. Accept that you have not been paid, and ask an expert to step in and help. Something is better than nothing. Obviously, you want to get a competitive contingency rate, but do not focus on the rate alone, and make sure you know which services are and are not included in the rate.

Do not hold to your files hoping that the money will just magically come in one day. If you have not heard from a customer in 90 days, you have a problem. Remember that the longer you hold a file, the more likely your collection agency is going to charge you a higher rate.

The most important tool for reducing cost of collection is  to pass those costs along to your customers when their files are referred for collection. You can do that if (and only if) your customer contract specifically addresses the issue. You must have a customer agree in writing beforehand that they are responsible for costs of collection. If you do not have it in writing, you cannot pass along the costs.

Sample language might be as follows:

If your account is referred for outside collection, you agree that you will be responsible for and all costs of collection including but not limited to collection agency fees, attorney fees, cost of suit, court fees. 

We recommend you ask your attorney to draft the language that is right for your business and your location.

Your ability to recover the costs of collection will be limited by three factors:

State laws – Some states allow full recovery. Some states allow only a percentage of principal or nothing at all.

Type of collection – Your state might have different laws for consumer versus commercial collection.

Court order – A judge or magistrate may or may not be willing to allow you costs.

However, you have NO chance of reducing cost of collection without this language. Make it a priority today to get it into your customer contract.

Maine Collection Agency: Can They Recover Finance Charges?

Posted by Marilyn Miller on July 11, 2019  /   Posted in Uncategorized

Collection agencies are capable of collecting finance charges, but they cannot do so in all cases. You must do your part and get your customer to agree to finance charges on past due balances before your provide your product and service.  If the customer does not agree beforehand, you cannot add finance charges afterwards.

At least once a week, I receive an invoice for collection that has finance charges added without a contract for them. I have to disappoint them by telling them that because they did not take steps at the beginning, I cannot collect the finance charges.

“But the finance charges are on my invoice,” they tell me. Sorry, but the law says it is not good enough to tell someone afterwards.

First, do you have a contract signed by your customer that states that interest will accrue on delinquent balances? The contract needs to detail when interest will begin to accrue, how it will accrue and confirm that interest rate that will apply. For example: “Finance charge of 1.5% per month will be accrue on all balances over 30 days past due”.

If you do not have a contract you CANNOT charge interest, and your collection agency cannot collect it. It is not enough to put your interest rate on your invoice. You must have it agreed to, in advance, by your customer. As I have stated before, even a simple informal email confirming key details can serve as a contract, IF the customer acknowledges and agrees to it.

Secondly, the type of transaction matters. If your customer is a business, you still need a contract, but you can add interest within reason to all transactions. If your customer is a consumer, you are governed by Title 9-A, the Maine Consumer Credit Code.

Maine law limits the amount of interest you can charge, depending on size of the debt, specifically:

The finance charge, calculated according to the actuarial method, may not exceed the equivalent of the greater of either of the following:

A. The total of:

(i) 30% per year on that part of the unpaid balances of the amount financed that is $1,000 or less;

(ii) 21% per year on that part of the unpaid balances of the amount financed that is more than $1,000 but does not exceed $2,800; and

(iii) 15% per year on that part of the unpaid balances of the amount financed that is more than $2,800; or [1997, c. 727, Pt. B, §3 (AMD).]

B. 18% per year on the unpaid balances of the amount financed.

Generally, 18% a year (1.5% a month) is the most acceptable and commonly used rate.

If you decide to take your case to Maine Small Claims Court, do not assume that you will be awarded interest with your judgment. You must ask the court to award you the prejudgment interest. If your debt plus accrued pre-judgment interest totals more than the Small Claims limit of $6,000, you will only be awarded that amount. And, the Court will have final say on the awarding of interest.

If you do not have a contract, ask the Court to at least award you pre-judgment interest. With a contract, you can accrue the greater of your contract amount or a formula  set by the state which is the one year US Treasury bill rate plus 6%. If you do not have a contract, you can still get post-post judgment interest, but will be bound by the formula, which is normally less than a contracted amount.

A Maine collection agency can collect any interest that is legally due or that has been awarded to you. It is very important that you communicate all information regarding this topic so that your agency can get the very best result for you.

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