Author Archives Paul Miller

Your Maine Collection Agency: What They Can and Cannot Do

Posted by Paul Miller on July 20, 2017  /   Posted in Uncategorized

This post is not about the Fair Debt Collection Practices Act and the rights of consumers to be protected from abusive debt collection practices. Certainly, a debt collection agency must be in compliance with the law, but there have been many articles written on that subject. So, if you are reading this article looking for information on how to stop collection calls, stop reading now.

However, if you are a small Maine business owner or entrepreneur and you are not getting paid by customers, and want to hire a collection agency, this post will help you get a realistic idea of what you should and should not expect.

 

 

Here are some things your Maine collection agency  can (and should) do for you:

Help locate customers who have moved – A big part of debt collection is finding debtors and their assets. You should never pay an additional fee for research as it is an integral part of the collection process.

Give you ideas on how to improve your credit practices – The best collection is the one you can make in house without having to send to a third party.

Save your time and let you focus on your business while they focus on getting you paid – Certainly you should make an effort to recover money, but after a while it simply does not make sense to use productive time chasing bad debt. Also, debt collection agencies have special tools and training.

Advise you on information needed to assist with the collection and maximize results – Ask your collection agency to advise you on the process, and ask them to tell you what information they will need to get the job done.

Here are some things your collection agency cannot (and should not do):

Change the financial situation of your customers – If someone is in a cash crunch, you may not be able to get all your money at once, and you should be realistic and flexible with your agency if they ask you to accept small payments or a settlement. A good debt collector is a skilled negotiator, and they will work hard to get you paid, but you may have to be patient and be paid over time. Remember that most agencies are paid on a contingency basis, which means they only get paid when they get results for you. So, if they ask you to take a settlement or payment plan, it is because their experience tells them it is best option.

Ruin someone’s credit – We get it. It makes you angry when you do not get paid. However, credit reporting is only one tool and recent changes in the law lessen the impact of single item anyway. So,  one item reported to the credit bureau will not ruin anything. Focus not on being angry but on the goal of getting paid.

Charge fees that are not in your contract or prohibited by law – If you want to recover collection costs or charge interest on past due accounts, you must have a customer contract that allows it. In addition, you must be in compliance with state laws. Some states allow recovery of all or part of your collection fees, others do not.  Certain rates of interest are considered by law usurious, or excessive. A good customer contract will be your best friend. Contact your attorney today to get one.

Collect debts that are legally uncollectible – Each state has a time limit, or statute of limitations that governs how long a debt someone can be held liable for the debt. Also it is illegal to collect a debt that is under the protection of the bankruptcy court. So, do not wait to long to send accounts off for collection!

Collect debts from parties that are not liable for them – Once again, the need for a customer contract is important.  When you are providing product or service to a business, especially a new business, you should ask for a personal guarantee. A personal guarantee means that a business owner takes personal responsibility for debt of their company if they go out of business.

Similarly you cannot hold heirs responsible for a debt of a deceased relative. However, if there is an estate with assets you can make a claim against the estate in an attempt to recover.

In the end, it comes down to communication with your Maine collection agency. Use your agency not simply as a commodity but as a trusted partner. It is perfectly fine to have high expectations, but your expectations must also be realistic.

Cost of Debt Collection: How to Control It

Posted by Paul Miller on July 19, 2017  /   Posted in Uncategorized

The cost of debt collection is bothersome to small business owners. They do not get paid, which in and of itself is bad enough. Then, to add insult to injury they have to pay a collection agency to recover the money for you.

There are a number of good collection agencies out there. Most agencies work on a contingency basis, which means that they do not charge a fee upfront and retain a percentage of whatever they collect.  It should be easy to get a competitive contingency collection rate, but you need to be careful to know what is and not included in the rate. Beware of extra charges for things like research, which should always be included in the rate.

There are also some other ways that you can control your cost of debt collection:

Stay on top of your receivables and have a system in place to collect as much as you can on your own.

Use a collection letter in conjunction with your invoices.

Offer clients a small discount to customers (lower than the rate your agency charges) on a “limited time only” basis. You will be surprised how a discount of 5% of 10%  will bring in additional payments.

If a customer ignores you for more than 90 days, send it to your collection agency without delay. The sooner you send a file to a collection agency (after your best efforts to collect on your own) the better.

Use your customer contract to apply finance charges to overdue balances. You have to have a signed agreement to do this. If you do not have one, call your attorney and get one today!

Use your customer contract also to recover all or parts of the collection costs from your customer. The cost of debt collection can often be recovered by your collection agency if you provide them with a signed customer contract that allows for recovery. Your agency’s ability to recover cost of debt collection will depend on the types of debt (consumer vs business) and the laws in your state. You collection agency should know what is and is not recoverable. However, once again – you have no chance of recovery without a signed contract.

As you see, controlling the cost of debt collection is easier than you think. All it takes is a little planning and the a steady, consistent focus.

 

 

 

Customer Credit: When a Good Customer Goes Bad

Posted by Paul Miller on July 16, 2017  /   Posted in Uncategorized

The other day I received a call from a small business client regarding a two year old debt for $ 2,000 from one of their best customers. They had worked with this client, another small business, for nearly 20 years and had enjoyed a tremendous mutually beneficial relationship until the customer started paying their invoices later and later, and then stopped paying altogether.

Due to their longstanding relationship, our client agreed to give their customer some time. They sent the customer their standard invoice for two years, with no response. They did not want to call, because they did not want to “upset” them. After two years, an invoice came back from the post office and when the owner finally placed a call the number was out of service. The business was gone, and since there was no personal guaranteein place, chances of getting paid on the bill were gone too.
So, how do you tell the difference between a customer in a temporary cash crunch from one who is about to “go bad”, i.e, go out of business or bankrupt and leave you unpaid and unable to collect anything?
The most important factor is communication. The client in the example above told us that his customer had always been a slow-paying but had never gone more than 60 days past due, and had always placed new orders. However, the delinquencies went to 90, then 120, and more, and there were no new orders.
Sadly his longtime customer did not communicate the true extent of his financial difficulties, but also our client missed some red flags that should have triggered action on his part. Simply sending invoices is not enough. After a few months with no response, a collection letter or phone call might have made a difference. When the new orders stopped, it should have been cause for concern.
If a client stays in touch with you and keeps you posted on their progress, then it is a different story, and perhaps you can float them a while longer. But consider the following:
• Get payment of a reduced amount. Keep customers in the good habit of paying you something.
• Offer a discount for payment of reduced amount. Make it a limited time offer and be sure to document.
• Watch and listen for signs that the company is in trouble. (No new orders, rumors of layoffs or other creditors they are not paying)
• Offer payment plans. Again, document.
• Consider hiring a collection agency. Find an agency that will work with you and have a softer debt collection approach for customers you would continue to do business with once their bills.
• Set a limit as to how much new credit, if any, that you will extend to a customer with an outstanding balance.
Know when it is time to terminate a relationship, as painful as that might be. Be compassionate and understanding with delinquent customers to a point, but remember to look out for your own interests first. Remember the line from one of my favorite movies, Cinderella Man. I’ll paraphrase, as the original is a little indelicate: Business man Jimmy Johnston, played by the wonderful Paul Giamatti is asked to “have a heart” and give a down-and-out a fighter a chance. Johnston replies, “My heart is for my family, my brain…is for my business”
So keep in touch with all customers, and keep them doing good things, and know when enough is enough.
Have you ever had a really good customer tell you that they are going through a rough time and cannot pay you? How did you resolve the issue? We would love to hear about it.
Looking to hire a collection agency but not sure where to start? We can help!

Maine Collection Agency – How to Choose the Right One

Posted by Paul Miller on June 29, 2017  /   Posted in Uncategorized

Maine_collection_agencyA Maine collection agency can help a small Maine business improve their cash flow by recovering their bad debt. Agencies typically work on a percentage of sums recovered, with rates can vary based on many factors including the age and size of debt, type of business, number of files submitted annually.

A Maine collection agency seeking to recover debt owed by Maine consumers must be licensed and bonded. The Maine Department of Consumer Credit Protection in Gardiner is the licensing authority. A Maine collection agency seeking to recover debt owed by Maine businesses (commonly referred to as commercial or B2B collection) is not required to have a debt collection specific license. However, as with any relationship, you should verify that the agency is indeed a business authorized to conduct business in Maine.

Your first step is to clearly define, and then articulate your collection goals. Many medical providers prefer a softer, more compassionate approach to debt collection. They want their agency to reflect the personality of their practice. Other companies, particularly in commercial collections want a more dynamic approach, up to and including actions in Maine Small Claims Court.

Once your goals are defined, you must clearly communicate them to potential agencies and see how their approach matches yours.

Other factors to consider are:

1.       Local – How important to you is it that your collection agency be in Maine? We recently successfully completed several large commercial collections for out of state companies who were owned money by businesses in Maine.  Being local created a sense of urgency, and it also provided us the opportunity to see firsthand if the business was still operating. For Maine consumers, a Maine collection agency would have more knowledge of local economic conditions such as mill closings that might impact the consumer’s ability to pay the bill.

2.       Experience – Does the collection agency have experience in your industry? Always ask for you check references.

3.       Credit reporting – While I personally believe that credit reporting is an overused tool in debt collection, if it is important to make sure the agency has the capability to do it.

4.       Research tools – Half of the people sent for collection will need some sort of research (referred to as “skip tracing” in collection-speak. How does the agency go about finding people and their assets?

5.       Technology – Does the agency have the tools to give you the information you need? Also, does their use of technology in contacting debtors work for you? Many agencies use automated calls to contact debtors – will that work for your customers?

6.       Compliance – Consumer agencies are governed by the Fair Debt Collection Practices Act. Medical debt collection must comply with HIPPA.

7.       Legal Capabilities – While Maine collection agencies who are not attorneys cannot represent you in Small Claims Court, if you believe you may want legal services, make certain your agency has a relationship with attorneys who can take your case to court. In the same vein, make certain the agency is experienced in post-judgment collection.

8.       Rate – Notice I listed this factor last – not because it is not important. A competitive rate is great, but make sure you know what is and what is not included. Most Maine collection agencies work on a “no collection, no fee” or contingency basis. What services are included in the rate? A low rate may mean your customer only receives one letter and a few phone calls.  

In the end, hiring the right Maine collection agency may be the smartest move you make for your business this year. Best of luck with it.

Collection Agency or Attorney: What is the Best Fit?

Posted by Paul Miller on June 28, 2017  /   Posted in Uncategorized

Both a collection agency or attorney can help recover bad debt for you. How to decide which is the best fit?

When you decide to get some outside help to recover bad debt for your business, you want to make sure that you select a partner that will get you the very best results. I am often asked how the services of a collection agency differ from the services provided by an attorney.

Whether you select a collection agency or an attorney to help you will depend on the kind of files you want collected.

If you have a good number of smaller uncontested files and want a focused, ongoing collection effort that involves communication with your customers by letter and phone, then a collection agency is your best bet. Do you want delinquent customers reported to credit bureaus, or need some research done to find customers who have moved? A collection agency is a good option here too.

A file involving a dispute that will probably result in litigation is best for an attorney. An attorney demand letter may be just the right thing to get you paid an avoid litigation, and is usually inexpensive. What happens if the letter does not work?  We recently received a file that had not responded to an attorney letter. The debt was 1,000 and the letter cost our customer $150.00. paid up front. The attorney said he would need an hourly rate to continue working the file. We got involved and called the business every day until he paid the bill.

You also need to determine which files make sense to litigate? Are there assets to attach? Decide the cost vs. benefit of legal action.

I get calls all the time from companies who have a large disputed case they want us to handle. I do not mean to say that collection agencies cannot handle disputed files – they can. However, if the only reason you are hiring a collection agency is to avoid paying an attorney retainer, then you may be making a big mistake.

If you want to hire a collection agency, find an agency with experience in your industry. Yes, you should look at the agency’s rates, but understand what is (and what is not) included in the rates.

If you want to hire attorney, ask them about their process if the initial demand letter does not get a payment. Do they follow up by phone? Do they have ability to research and find assets? Ask the attorney Are they going to handle the post judgment as well as the court hearings? Finally, find an attorney that understands collection law. The attorney who handled your divorce or drew up your will may not be suitable.

There are times when either option can get the job done, and you can make a decision based on the collection partner you think you can work with in the long term. Your best bet is to find a collection agency that has a relationship with experienced collection attorneys. That way, you get all the benefits of both approaches. It is one thing to go to court and get a judgment, but another thing entirely to collect on a judgment.  The right partnership between collection agency and attorney will deliver judgments that collect!

Cost of Debt Collection: Avoid Toilet Paper

Posted by Paul Miller on June 27, 2017  /   Posted in Uncategorized

The cost of debt collection is often misunderstood. One question that continually comes up in small business is the cost of collection, which is the contingency rate – a percentage of sums recovered.  The rate varies from 25-50% depending on many factors, but mostly on the date of service or invoice.  The idea is, older the fish, more work to collect and thereby the higher rate.  The real news is, if we collect nothing, there is no fee, cause, and this is the real kicker, 25% or 50% (or any rate) times of $0.00 is ZERO!!!!!!

 Too many small business owners consider only rate when hiring a collection agency. It is a good business practice to negotiate a competitive rate. However, once you hand a file off to a collection agency, live with your decision and focus not on the money you are “losing” but what you are recovering.

 The truth is that the loss has the loss has already occurred.  An unpaid office is worthless to you. You called me.  You called me because you have realized that you may have nothing, or at the very least something less than the value that is shown on the face of your invoice.

Business owners often suffer from the delusion that there is in fact a value associated with the piece of toilet paper that they are holding.  I call it toilet paper, because its value as toilet paper is less than toilet paper.  At least with toilet paper, real toilet paper, you can do something with it.  An invoice, printed on a piece of copy paper, purchased from Staples is worthless.  There is no value. You cannot use that invoice to pay your own bills. The person on the other end of the invoice is not paying.  For whatever reason, the “bad guy” does not wish to honor the obligation associated with the invoice, making the invoice worthless. the_cost_of_debt_collection          

Here is a real-life example.  Our client, a tech company, was owed $7500.00 of work done by a tech company.  It remained unpaid for years and the client held onto it, always hoping, spending it in his mind.  When the client finally relented and gave up the idea that the “bad guy” was going to pay, he called.  The good news is the client came to the realization that he may be holding a ZERO VALUE.  The bad news, it was beyond the statute of limitations, the legal time limit for collection.  The value was zero, and there was no legal means to get paid.  The worse news is that the “bad guy” had means: real estate, property, income from a business, which could have been have been secured by a Small Claims Court judgment has we gotten involved earlier, but meant nothing because of the statute of limitations.   

The lesson to be learned: if you are not paid in 90 days of the date of the invoice, you have a problem, and with each passing day, the problem gets worse.  Waiting and hoping are the kiss of death to associating value to your invoice.

Collection Agency Results: How to Make Them Better

Posted by Paul Miller on June 23, 2017  /   Posted in Uncategorized

It’s a good thing to hire a collection agency. How do you maximize collection agency results? If you really want to get the best bang for your buck, you must assist the agency by giving the tools and information they need.Customer_credit

First, you must provide the agency with a complete submission with all relevant information. Your collection agency should give you some guidance here, but for starters:

  1. Detailed invoice showing all services provided, cost of services, payments, etc. Your invoice must include the date(s) service was provided.
  2. ALL information you have on the delinquent customer. Provide name, address, all phone numbers, email, place of employment, date of birth and any other relevant data. If you do not have a current address/phone/email, send the old information. Your agency should be able to “skip trace” or research using the old information.
  3. A copy of your contract. If you don’t have a contract, send any relevant information that proves the customer ordered the work.
  4. Any relevant correspondence from the customer. For example, submit any change orders, disputes and/or an unfulfilled promise to pay. If you do not know if it is relevant, send it.
  5. A brief description of the nature of the debt. If the customer paid you with a bad check, make sure to mention it. If you are a subcontractor and you know the general contractor was paid, but did not pay you, that is an important detail you must share. You get the picture, give any  detail you think might be important.

Secondly, once you submit a file, let the collection agency do their job. Do not send out monthly invoices. If the customer calls you begging you to take them out of collections, do not relent. I cannot tell you how many times a client has asked us to pull a file, only to get that file back a month or so later when another promise to pay has been broken. Certainly, if you receive a payment, accept it, and make sure to notify your agency immediately.

Finally, share any new information you may learn on the delinquent customer. You may hear that the company is going out of business, laying off employees, or purchasing new equipment. If your customer is a consumer, you may learn of a new job, divorce, or relocation. As with any information, err on the side of giving too much information. You would not believe how one small piece of information will turn a “dead” file into a successful collection.

Remember, your collection agency is a trusted partner. Work with them, and you will be delighted with your results.

 

Collection Agency or Your Lyin’ Eyes?

Posted by Paul Miller on June 21, 2017  /   Posted in Uncategorized

“Who ya gonna believe, me or your lyin’ eyes?” – Chico Marx in Duck Soup

collection_agency

Your collection agency is a valuable business partner. When you hire a collection agency, you do so not only to improve your cash flow by recovering bad debt, but also to save you time. A collection agency focuses on only collecting bad debt, and they have the tools and skills needed to do so.

So, let them do their job. While collecting bad debt is not magic, there is an art to it, and it is not for everyone. I believe that you should try to collect bad debt on your own, but if you have not been successful in 90 days, bring in the experts.

Once you place the file with your collection agency, trust their advice. In many cases, they have done research and they know the best way to get the job done. Since collection agencies work with a contingency fee basis, the are certainly going to advise a strategy that has the best chance of getting you paid.

Here are a few examples from our files:

Our client is owed $5,000. Their customer is a sole proprietor with a small business and assets.  We have researched and know that he is getting ready to retire. He also owes a great deal of money to other creditors. Our advice was to proceed immediately to Small Claims Court to obtain a judgment and secure their debt. It is frustrating to me that my client, who hired me to recover bad debt, is uncertain, and wants to take some time to think about it. I am not sure if the wait is because it means they will recover a little less money, or if they are worried about going to Court, but I hope they decide soon so that we can act. If we do not move now, we will wind up behind many other creditors, or the customer will sell his assets and move away, and there will not be anything to collect

For another client, I recommended Small Claims Court again, because the debt is almost 6 years old, and about to age beyond the statute of limitations. He has not responded to any requests for payment. He appears to have the means to pay the bill. I laid the facts out to my client and he told me to go ahead, because he trusted my experience and knowledge. He sees the collection of the file as our mutual goal.

There you have it – two very collectible files – one that will pay and another that may go by the wayside.

An aging receivable is not worth anything unless it can be converted to cash. Your collection agency knows how to do that. They would never tell you how to sell your product or deliver your service. So, when your lyin’ eyes tell you the bad debt on your books is valuable, don’t believe them.

 

 

 

Maine Collection Agency: Can They Collect Finance Charges?

Posted by Paul Miller on June 20, 2017  /   Posted in Uncategorized

rate

Using a Maine collection agency help small business owners with bad debt recovery, but they collect finance charges? It depends on you, for several reasons.

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.

Small Claims Court: Mistakes You Should Not Make

Posted by Paul Miller on June 15, 2017  /   Posted in Uncategorized

Maine_Small_Claims_CourtSmall Claims Court works well if you know the correct procedures, and you research your files before taking on the process. However, if you are not careful, you may wind up with a useless judgment. This week, I had the awful job of telling a prospective client that his $5,000 judgment might be uncollectible. Let us look at what happened.

Our client is a consumer who sued a business. The debt owed to him was documented and valid. So far so good, right? When his contact at the business did not pay, he hired an attorney to sue the business and the person he believed was the owner of the business. He paid his lawyer $ 1,000 upfront to take the case to court.

Six months later, his lawyer called him with the good and the bad news. The good news was that our client was awarded a judgment for $5,000. The bad news was that his attorney informed him that his services did not include collection of the judgment, and that he would have to collect the judgment on his own.

The news got worse. Our client’s contact is not, and never has been, a principal of business, and was likely not authorized to sign on behalf of the business. He has no assets in his name. The business name, as sued, is incorrect. The actual business, not named in the lawsuit, has no assets in its name.

So, what went wrong? First, our client did not do research to find information on the company and its principals. Perhaps he believed his attorney would do that, but the attorney relied on the information provided to him. Secondly, our client did not ask his attorney which services would be provided. Small Claims Court is great for getting a judgment, but collection is about actually getting paid. The Court does not collect the money for you, so anyone who accepts the case for you should be experienced in debt collection, not just filing lawsuits.

Lastly, our client took a case to his attorney that was better suited for a collection agency. A collection agency would have worked to get the debtors on a payment plan, and if they decided that legal action was necessary, would have researched the file and handed the attorney file that had the potential to get the client paid.

Small Claims Court is not for every file. An attorney is not always the best option for debt collection and not every attorney has experience needed to recover your money. Make sure you know the difference.

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