Author Archives Marilyn Miller

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

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.

If you have hired a collection agency, congratulations! You have taken an important step towards improving cash flow and saving time and effort. In order to get the best results, however, you must work closely with the collection agency.

Effective communication with the agency is key.

You should expect your collection agency to keep you apprised of their progress. They will primarily do so with monthly reports to you. You also have a responsibility to communicate any new information to your agency. If you receive a payment in your office, let the agency know immediately. If you learn any new information about customers in collection agency – address, phone, job – anything, pass it along. Research is a big part of debt collection and new information is precious to an agency. 

Also, advise your agency if there are customers in collections that you would take back once their debt is paid. They may be able to use that information and the promise of redeeming their relationship with you to get you paid.

Stop billing the customer, and stop providing service.

It is important that customers in collections see you and your agency as one united front. If someone wants to pay you, take the money. However, if they want to argue about the bill, set up a payment plan, or if they beg and plead to be taken out of collections, send them back to your agency. I always tell my customers, “Take the payments, but do not take the issues.”  Your hire your agency to resolve disputes and set up and execute payment plans, so let them take the heat.

Do not be surprised if customers sent to collections – the very same customers who have avoided you for months – call you and promise you a future payment to avoid “being in collections”. Unless they make an immediate payment, stick to your guns and refer them back to your agency. Your agency’s efforts – even if it was just one call – made them come to the table. Plus, every single time I have seen this happen – the customer has made a couple of payments and defaulted. Then the customer winds up back in collections – except that now I charge a higher rate!

As much as possible, stop providing product or service to customers in collections. I once was attempting to collect a $ 5,000 bill for a doctor. The debt resulted from treatment for injuries resulting from a car accident, and the case was in litigation. Often physicians will accept a lien or letter of protection which “protects” the bill and promises payment when the case settles. Attorneys are often involved in these cases, and can provide letters of protection only if their clients agrees. In this case, the debtor refused to agree to lien her settlement, because she “needed the money to move”. She also refused to pay anything towards her balance. I called my client to discuss her case, and they informed me that they were currently treating her for another injury and that she had already racked up a $2.000.00 bill. This patient was effectively getting more “free” service from the doctor, and was therefore unlikely to take any demands for payment seriously.

Also, stop billing the customer. Your collection agency should send regular notice, and customers who hear from two different sources may either get confused or believe that you and your agency are not working in unison, and exploit that fact.

Rate of return is everything

Collection agencies generally work on a contingent basis. They do not charge you any fee up front and are compensated with a percentage of sums recovered. While the contingent rate they charge you is important, the true measure of success  is how much they actually recover. Some agencies will offer what will seem like an attractive rate when in actuality it is a rate priced to do only a limited collection effort.  Monitor the actual rate of return you receive from your agency. If you are receiving less than a 25% rate of return (15% is the national average), then consider finding a new agency. 

Let your collection agency do what you hired them to do, and treat them as you would any other trusted business partner. Expect results but assist in the process. You will be glad you did.

I have been collecting medical debt for over 20 years. So many things have changed since I started. Small practices have been swallowed up by larger ones, patient out-of-pocket expenses have skyrocketed, technology has changed the way people pay and the enforcement of laws governing debt collection and medical privacy has increased.

One thing, however has not changed. Health insurance is not easy for most consumers to understand. I speak often with frustrated consumers who dutifully pay their insurance premiums each month and wonder why insurance did not cover the cost. Yesterday I had a 3-way conversation with a patient and her insurance company. The woman wanted to pay, and finally did pay her bill, but did not understand how the balance came to be.

I am of the opinion that we all should know how our insurance plans work. We should understand the difference between a copay and coinsurance, how a deductible works and when an insurance sublimit will apply. They should make sure any new medical provider accepts and is in network with their insurance company, and verify if a procedure is covered before they have it.

However, I live in the real world, and I understand that most people are either not willing or do not know how to learn more about their insurance. So, it becomes important that medical providers do everything they can to make sure they communicate well to their patients.

Every patient should complete and sign a financial responsibility agreement with you. The statement should clearly indicate who is responsible for any amounts not paid by health insurance. You can also use this form to let patients know that they are responsible for any cost of  collection. These agreements should be updated at least once a year. 

Even innocuous statements made to statements can be misconstrued. When I contact a patient regarding a debt, I all too often hear them say that they were told they were , “all set”, a statement which they interpret as meaning that they do not owe any money.

Another issue we often see is that some medical practitioners continue to see patients who owe them significant amounts of money. While we understand that in some instances, a medical condition or an ongoing process (such as orthodontia) make it impossible to discontinue services, there are many instances where you can discontinue. 

My medical clients who do not allow patients to make new, non-emergency appointments if they have unpaid balances are seeing a marked improvement in their cash flow and are having to send fewer accounts for outside collection. So, if you have leverage, use it!

As with most business transactions, better communication is everything. Sure, you can always have patients who do not pay you for any number of reasons, even if you do everything right. However, attention to the details in communicating with patients can never hurt and will help you avoid problems down the road

Do you want to send fewer customers to collections? Do you want to maximize chances of recovery of the accounts you do send to your collection agency?   Here are ten things you can do:

Establish a clear and consistent credit policy and stick to it.

How much credit are you willing to extend to customers? • How long are you willing to wait for your money? • What sort of terms will you offer? • What are your competitors doing? • What image do you want to portray in the community? • When are you willing to “fire” a non-paying customer? • How far are you willing to go to collect money owed to you?

Develop a system to monitor your receivables.

Review the aging of your receivables every 30 days. Many small businesses use Quickbooks, which provides excellent reports that you can use to track your non-paying customers. The best report in the world is not of any use though unless you are closely monitoring it and have a plan to take action at each step along the way.

Designate one person as primary contact responsible for accounts receivables and collection.

Focus is key.  You need one person driving the process – someone always looking, and communicating any issues to key individuals within the organization.

Set up in-house pre-collection process and use it consistently.

When are you going to send a follow up collection letter? • When do you make follow up phone calls, and who makes them? • Involve sales, customer service and management in the process • Personal contact get results

Use a contract with every customer.

Your contract MUST have:

• Scope of work to be performed

• Length of project

• Cost of work

• Terms for payment

• Consequences for non-payment (interest/collection costs)

Use a personal guarantee in your contract with a business.

You sign a personal guarantee when you borrow for your business. Expect the same guarantee from your customers, especially businesses under three years old. A personal guarantee will enable you to recover from someone even if they go out of business.

Collect complete customer contact information and update regularly.

Collect all customer data you can, include all phones, place of business etc. For a business, make certain you have the correct legal name. For an individual, make certain you have full name including professional title, middle initials, Jr/Sr. Update every time you have contact with the customer. 

Invoice regularly and present invoices that are clear and detailed.

Many collection problems result from poor billing practices. Make sure your invoices clearly detail each charge as outlined in your contract. State due date for payment. Send bills monthly.

Offer incentives for prompt payment and set up payment plans that work

Offer a discount for a cash payment, or a payment made before the due date. Or, set reasonable payment arrangements, preferably with a significant down payment (e.g. 25% down/9 equals). Be sure to document all arrangements!

Make it easy for people to pay you

If you do not have a way for customers to pay you online, you are missing a real opportunity. Twenty years ago, 80% of people paid us by check in the US Mail. Today, we rarely receive checks and 80% of our payments are through our online payment portal.  Look into tools like Venmo and PayPal. Know your customers, and give them an opportunity to pay them the way that is easy for them. 

What is the statute of limitations for debt in Maine and how is it important to your business?

I have written a great deal on the many issues that could arise if you fail to monitor your accounts receivables diligently or if you wait too long to hire a debt collector or use the small claims court to recover money owed to you.

One of the most difficult conversations I have with small business owners is telling them that the statute of limitations has run out, and the debt is now not collectible. The statute of limitations is the period of time you can pursue a debt owed to you.  In Maine, the statute of limitations is 6 years. The statute of limitations in Maine begins 6 years from the date of service, or if payments have been made, the statute begins the date of the last regular payment. Why anyone would wait 6 years is beyond me, but it happens all the time.

Some people get busy or do not have the appetite for bad debt recovery. Still others may feel the effort involved is not worth the potential recovery if the person or business does not have money or assets to pay what is owed. However, just because they do not have the means today does not mean they will not have them tomorrow. Similarly, if you believe there are available assets, if you take your claim to a Maine court and are awarded a judgment, your judgment is good for 20 years. Any number of things can change in 20 years.

Of course, if you get a judgment it will not collect on its own.

You have to continue to reassess the debtor and look for assets. Here is a case in point.  We received files from half a dozen business owners who were all owed money by the same person. All his assets were over-encumbered, and there appeared to be no way to recover anything at all. Some of the businesses went ahead and sued the debtor, while others did nothing but wait. After a few years, the debtor received a large monetary award. Those creditors who had monetary judgments were able to immediately attach the award and recover their money. Sadly, those who had waited could recover nothing because the statute of limitations had expired.

You certainly cannot afford the time or expense to take every case to court, so it is important to choose wisely. Sometimes it is a leap of faith, or a feeling that your customer will one day have the ability to pay, and other times it is just luck.

There are also many small business owners who are unaware that they have 6 years to pursue collection of a debt.  Of course, the longer you wait, the harder it may be to find the debtor, and you will pay a higher fee to the collection agency, but something is better than nothing.  If you do place an older debt with a collection agency, make sure they have the ability to “skip trace”, or locate your customers, since people are increasingly mobile in today’s world.

I do not mean to recommend that you wait 6 years.

You have a problem if you have not been paid after 90 days, and you need to take action. Remember, those aging receivables sitting on your books cannot feed your family, pay your employees or grow your business. Cash flow is king, and you can control it.

Small Claims Courts were set up specifically to allow business owners the opportunity to bring grievances to court themselves, thereby saving on attorney fees.

Courts in Maine and in many states continue are slowly reopening after a long  Covid-19 closure.  As they reopen, there will be a tremendous backlog.

If you have been using Small Claims Court to sue customers who owe you money, you will likely have to wait months (or years!) to get a hearing. And remember, the Court simply awards a judgment that you have to collect yourself, which will mean even more delay.

The good news is that there are alternatives to Small Claims Court.

Settlement: If your customer admits to owing you but does not have the funds the entire balance, consider settling for a smaller amount. We recommend lump sum settlements whenever possible to avoid a drawn out string of payments.  A small discount can save time and infuse cash into your business.

Payment Plans: If cash flow is an issue for your customer, they will not be able to pay in a lump sum and a well structured and documented payment plan can be a good option. Require a deposit to begin the plan. Make sure the plan is in writing and signed by the customer.

Promissory Note: Perhaps your customer is going through a rough patch but is certain to have funds to pay you in the future. A promissory note is a written promise to pay you on a certain date. The note must be specific in terms of the amount of payment, method, date, finance charges and so forth.

Set up an in-house collection agency: You will be amazed how much money you will be able to bring in if you set up a system and use it consistently. Draft a series of collection letters of increasing urgency. Provide your staff with scripts for collection calls. Meet weekly to review progress.

Hire a collection agency. Find a collection agency that has experience working in your area and with businesses like yours.  Make sure the agency is compliant with state licensing requirements (if they exist) and check references. Provide a collection agency all information regarding the debt and the delinquent customer. Keep in touch with the agency during the process.

Not every debt or every customer is right for a Small Claims Action. Even after the Courts reopen, you may find these are better alternatives much of the time. The best way to get the Small Claims Court right is to realize that is only one tool in the debt collection toolbox. Have a strategy that includes a solid in-house collection effort, a relationship with a debt collection agency and a working knowledge of the  Small Claims Courts, and success is guaranteed.

The right collection agency can benefit your business. It is important to hire an agency that shares your goals and reflects your style. A collection agency does a great deal more than phone calls and credit reporting.

There are things, however that a collection cannot do.

If you do not have a contract that allows for costs of collection, you cannot expect your collection agency to pass those costs along to the delinquent customer. You want a collection agency that follows the law, always and adding fees without a written contract is simply not in compliance with the law.

You can reduce your costs of collection by taking the time to make sure your customers to agree to pay collection costs in writing in advance of a transaction. If you do not want to take the time to put together a contract, even a simple one, you cannot fault your agency when they tell you they cannot add fees.

A collection agency cannot collect a debt that has been discharged in bankruptcy. or a debt that is so old that the statute of limitations has expired. If you wait years to hire an agency, not only will you pay a higher collection rate, but you also may miss the opportunity to collect it at all.

Trust me, I really hate telling a client I cannot collect a debt. If I cannot collect it, I cannot be paid for collecting it, so I am going to do everything I can to find a way. However, I am a realist and there are things – like the statute of limitations – that I just cannot change. The frustrating part is that most times, the inability to collect or to reduce the cost of collection is entirely preventible.

For creditors, a little planning goes a long way.

There are measures creditors can take that will empower their collection agency to do a better job for them:

• Customer contract that allows (in writing) for collection costs or accrual of interest
• Less delay in sending files to a collection agency. After 90 days, bring in the experts
• Share any information with collection agency that might help them do a better job.
• Stop billing customers once they have been sent for collection. Send any inquiries from customers back to the agency and let them do their job.
• Communicate your collection goals to the agency. If you would like customers back once they have paid their debt, you may want a softer approach to collection. On the other hand, if someone bounces a check on you, or disrespects your business, your agency should know you have cut ties.

If your are unwilling to plan a bit, you cannot fault your collection agency. The fault will belong to you. If you DO take some simple steps to plan and assist your agency, you will be delighted with the results.

Most people believe that a collection agency simply makes phone calls and reports debts to a credit rating agency. Certainly telephonic contact is an important part of the process. Although I contend it is overrated, credit reporting can perhaps assist with recovery.

So what else does your collection agency do?

Collection agencies have specialized tools to locate your customers and their assets.  I spend a good part of my day looking for people and their assets. “Skip tracing” is the research process in the credit and collections industry. The term comes from private investigation firms who would look for information on people who had “skipped town”. To me,  skip tracing involves finding new information (address, phone, email, assets) of customers who have moved.

Why is skiptracing important?

How important is skip tracing to the collection process? Lexis Nexis, a leading provider of research tools for law, government and collections estimates that 35% of delinquent debtors move annually. Also, 50% of files placed for collection will need some sort of skip tracing.

Collection agency research might reveal a name change due to marriage or divorce, new  phone number, or a new job. They will research a file under consideration for possible legal action  to make certain there are assets (job, bank account) to justify legal action.

Does skiptracing cost more?

Your collection agency should provide skip tracing as part of their services. Although some agencies charge a higher contingency rate for collections involving skip tracing, you should not have to pay an additional fee for it.

What sources are used to skiptrace?

Services like Lexis Nexis and Transunion offer automated services collection agencies use. However, these databases use public information.  If a person must have something in their name – a utility bill, driver’s license – anything. If not, chances of finding them with this method is next to nothing. Still, it is a good first step.

Collection agencies may also can review credit reports not only to obtain contact and asset information, but to get an idea of the debtor’s ability to repay the debt.

Often a collection agency will review court and land records. Solid research drives the strategy. As an example, we once selected a file for litigation. The debtor had a good job and owned a home. However, she had multiple judgments liens against her, more than the value of her home.

Skip tracing becomes an art when you take it to the next level and review the debtor’s social media profile. You would be amazed at how much information can be obtained from Facebook, LinkedIn or a simple Google search.

I love working puzzles, and quality skiptracing is just that. If your collection agency is not doing this for you, you are missing a huge piece of the puzzle.

Collection agencies get a bad rap. Some of the criticism is deserved. The very idea of receiving a collection call is upsetting. Some collection agencies have been poor actors. If you are a business, you hate the idea of hiring a collection agency.

However, some of the criticism comes from common misconceptions. Let’s take a look at the most common misconceptions:

Number One: Collection agencies are allowed to run rampant and have no accountability.

While requirements vary by state, many states require consumer collection agencies to be licensed and bonded. They are audited annually and held to strict professional standards. On a federal level, the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission offer guidance and provide an avenue for consumer disputes.

Collection agencies are also subject to civil penalties if they violate the provisions of the Fair Debt Collection Practices Act, or FDCPA. The FDCPA, a federal law that limits the actions of third party consumer debt collectors.

Like any industry, there are good companies and bad ones. However, most collection agencies are realizing that they key to staying in business is treating debtors with respect. Working with people and putting together payment plans that benefit all parties is the way to go.

Number Two: Collection agencies exist to ruin the credit of people in debt.

While many collection agencies use credit reporting as means to secure payment of a debt, it is only one tool, they are required by law to do so carefully. Debts are usually not reporting until a concerted effort is made to reach the consumer for payment. The reporting of one single debt has limited impact, and only the reporting of multiple debts will actually “ruin” credit. Good collection agencies focus more on recovery for their clients, because that is how they get paid.

Number Three: Referring a non-paying customer to collections will hurt your business.

Will customers be upset when they are referred to a collection agency? Sure. Will they refuse to do business with you again? Perhaps. My question would be, “Do you want to do business with someone who will not pay you?” Some business owners and physicians believe they will get sued by customers referred to collections. I have never seen this happen and I have been doing this work for nearly 20 years. Of course, if you know of a situation that could give rise to a cause of action against you, you should think twice about referring that file.

These days, online reputation is everything. Some small business owners are concerned that customers in collections will slam them online. If someone who owes money wants to share with the world that they have not paid for services (again, I have never seen this happen), don’t you think their comment will be seen for what it is?

A dentist client once told me that he was worried that he would get a reputation as, “the dentist who sends his patients to collections”. He was owed $100,00 and was having trouble meeting his expenses. I replied that he had the reputation as the dentist who nobody ever pays. We wound up collecting thousands for him, and not one patient ever complained.

Number Four: Collection Agencies Cost Too Much

Most collection agencies work on a contingency basis, which means they take a percentage of what they recover. They do not get paid until they get you paid. If you are at the point of hiring a collection agency, you are aware that you have nothing.

Imagine a business that provides a cost for service to you before knowing what it will cost them to provide that service? That is exactly what a collection agency does. When they accept a file, they do not know if they will collect in a week or a year, but still quote you the rate to collect the debt.

If your collection agency fails to collect, you do not owe them anything. How is that expensive?

Number Five: Collection Agencies do not do Anything I Cannot Do Myself

Collection agencies only collect money. They focus on it. Do you have time to focus solely on chasing non-paying customers? Collections agencies have specialized tools to research and find people. They have the experience to determine the ability of people to pay, and the skills to negotiate a settlement on your behalf.

If you have an issue with customers not paying you, but are not sure a collection agency is right for you, pick up the phone and speak to a few agencies. Call some business owners you know and talk to them about their experiences. I think you will be pleasantly surprised.

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 and it is important to understand the ways that debt collection agency fees are applied, what is included, and most importantly, what is not included and would cost extra.

Collection agencies get paid in one of two ways: flat fee 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 in advance and the collection agency sends one letter and makes a few phone calls. Per file fees debt collection fees are based on the hope that some files will pay quickly.

There are two 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.

A contingency collection debt collection agency fee 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.