How Reduce Your Cost of Collection

Posted by Marilyn Miller on June 01, 2022  /   Posted in Uncategorized
You can significantly reduce debt collection costs with a customer contract before you grant customers credit.  However, too many small business owners do not have a written contract in any form. If you wait until after the transaction,  it is, as my mom would say, “Closing the barn door after the cows have gotten out”.  Good solution, but too late to be of any use.

How do customer contracts help debt collection?

Customer contracts are your most important tool.  They often make the difference in your ability to collect a debt, or in your collection agency’s ability to do so. Customer contracts are often the very thing that convinces a customer to pay.

Can I use an oral contract?

Oral contracts are legal in Maine and in many states. However, an oral contract leaves the terms and conditions open to interpretation. Take it from me – when people owe money, they may “remember” the terms differently than you do. Get it in writing!

How about finance charges?

You must have a signed contract to charge interest on past due balances. Business owners often tell me their finance charges are on the invoice. Your customer will not see the invoice until after the work is done.  That is too late!   You must prove that the customer agreed in advance to pay finance charges.

What about the costs of collection – can I pass them along?

You need a contract to recover costs of collection, that is attorney fees, collection agency fees and such. Each state has different laws regarding your ability to recover it, but in all cases, you must have a signed agreement that predates your transaction. If you wait until after the transaction, and your bill goes unpaid, it is, as my mom used to say, “Closing the barn door after the cows have gotten out”.  Good solution, but too late to be of any use. What is a personal guarantee? A personal guarantee is a contractual promise by the owners that they will personally pay the debt if the company is unable to pay. Yesterday, I received a request to collect a large bill that is owed by a company that is out of business.  They had a contract, but it is of no use because the company and its assets are gone. In this case, a personal guarantee would have been helpful. When I was thinking about writing this blog, I thought that a good analogy for the solution that comes too late, or trying to enforce contractual terms without a contract would be to compare it to putting in a sprinkler system after a fire.  However, while yes, you would not be able to prevent a fire retroactively, you could learn the lesson and install sprinklers to prevent future fires. So it is with your customer contracts. Use them to reduce debt collection costs. If you do not have a contract, get one today. You do not need a lengthy document. Even a quick email works. Update customer contracts annually.  Use a personal guarantee with business customers. In other words, close the barn door before the cows get out, not after!

Accounts Receivable: Breaking Up is Hard to Do

Posted by Marilyn Miller on May 26, 2022  /   Posted in Uncategorized
Accounts receivable are an asset, but in order to be of value, they have to be converted to cash. Although some companies may enter into factoring arrangements and pledge receivables, most cannot. So basically you cannot use receivables to pay your employees or buy new equipment.
What is accounts receivable?
Accounts receivable (A/R) are defined as balances due services or product that have been provided or delivered. The definition also states that that these balances have not yet been paid. They are simply a promise to be paid. Once you are paid, and only when you are paid, do you have income. Too many small business owners confuse accounts receivables with income. Small business owners all too often delay hiring a collection agency because they have fallen in love with their receivables, and believe those nice big numbers, even when the accounts receivable are not yet collected and yes, even if they are a year delinquent. My advice is always the same: Break up with your receivables, even if (homage to Neil Sedaka) “breakin’ up is hard to do”.
You must have a plan for managing your accounts receivables.
If you do not manage your A/R, they will manage you. Your cash flow will suffer. You will find there is not enough money to pay your creditors, your employees, or yourself. A small business plan for accounts receivable management should include a plan and timetable to reach out to delinquent customers. The timetable must include a deadline for the process of forwarding delinquent customers for third-party collection and/or litigation. Your approach must be consistent and you must commit to it.
The math is simple.
If you are holding off hiring a collection agency because you are put off by the collection agency rate, you are only hurting yourself. Remember, you have not been paid. Once an account is delinquent you have in effect suffered a loss and you have nothing. 0 Times any rate is always 0 Switch your thinking to recovering as much as you can. If you plan for it using a customer contract, you may be able to recover some of your costs of collection. Some breakups are harder than others. But in the case of your accounts receivable, you have nothing to lose, and everything to gain.

Collection Agencies: Five Biggest Misconceptions

Posted by Marilyn Miller on May 19, 2022  /   Posted in Uncategorized

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.

Collection Agency: More Than Phone Calls

Posted by Marilyn Miller on May 16, 2022  /   Posted in Uncategorized
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.

Accounts Receivable: Not a Spectator Sport

Posted by Marilyn Miller on April 20, 2022  /   Posted in Uncategorized

Accounts receivable management is essential to the financial health of a small business. All too often small business owners forego accounts receivable management, claiming that they are too busy with sales or day to day operations.

Everything is fine, they will say. We grew our sales by 50% this past year, and we have to focus on servicing our customers. If we keep them happy, they will pay us. 

Famous last words. All the sales in the world mean nothing if they are only sales on paper, that is, if you are not actually receiving money. I have seen too many business get into a cash bind because they were not paying attention to receivables.

Certainly happy customers are more likely to pay you than dissatisfied customers. However, I have built a business on collecting from people who have never disputed the product or service they received.

Design an accounts receivable program and stick to it.

Do you have an aging report? If not, you must get one immediately.  An aging report shows you which customers owe you money, and how long each customer account has gone unpaid.  It is likely that you already have the software to construct an aging report. If you do not, accounting software such as QuickBooks will do the trick.

Once you have your aging report in place, live with it. Review weekly and come up with a plan to contact delinquent customers. Bring in key staff and assign weekly tasks for follow up. I once had a client tell me that they were in such a cash bind that they were having trouble paying their bills. They began small group meetings every Friday that lasted only 30 minutes but reviewed delinquent customers, which steps had been taken, and what the next step should be.  Just paying to attention and calling customers or sending them a collection letter made a dramatic difference.

We recommend, as a rule, a 90-day process for accounts receivable management:

After delivery of product or service – Customer service call to ask if customer happy service. Use the opportunity to confirm billing information.

  • Thirty days – Friendly reminder letter or notice
  • Forty five days – friendly reminder phone call
  • Sixty days – Second letter. You can draft a completely different letter or simply send the first letter with a stamped, “Second Notice” on it. Be creative here. Use a different color paper, or a sticker in a bright color that lets them know they need to pay you.
  • Seventy- five days – Phone call from management.
  • Ninety days – Final notice to pay within ten days or be turned over for collection.

You may want to wait a little longer, say 120 days for some customers, especially if they represent repeat business to you. You may forego outside collection and take them to Small Claims Court yourself.

The specifics are not as important as having a process and having the discipline to stick with the plan. Consistency is key.

Even if you are lucky to have an accounts receivable department, do not sit back and assume everything is fine. Get involved. Lend support. Let the accounts receivable team know you are available to help when needed. Let them know they are a vital part of your company.

Accounts receivable management is not a spectator sport!

Collection Agency or Your Lyin’ Eyes

Posted by Marilyn Miller on October 14, 2021  /   Posted in Uncategorized

“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.

Collection Agency: How to Get the Best Results

Posted by Marilyn Miller on September 21, 2021  /   Posted in Uncategorized

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.

Medical Debt Collection: “You’re All Set”

Posted by Marilyn Miller on September 07, 2021  /   Posted in Uncategorized

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


Want to Send Fewer Customer Accounts to Collections?

Posted by Marilyn Miller on August 10, 2021  /   Posted in Uncategorized

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. 


How Long Can You Collect a Debt in Maine?

Posted by Marilyn Miller on July 29, 2021  /   Posted in Uncategorized
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.

  © COPYRIGHT 2022 United Obligations
^ Back to Top