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

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

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

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

Question: Can’t you just lien their home?

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

No, wrong. 

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

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

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

Well, probably.

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

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



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

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

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

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

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

Reducing the Cost of Collection with a Customer Contract

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

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

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

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

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

Sample language might be as follows:

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

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

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

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

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

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

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

Maine Collection Agency: Can They Recover Finance Charges?

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

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

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

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

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

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

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

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

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

A. The total of:

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

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

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

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

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

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

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

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

Collection Agency: Best and Worst Reasons to Hire

Posted by Marilyn Miller on July 01, 2019  /   Posted in Uncategorized

A collection agency that works hard to recover money for you can be a valuable business partner and save you time and money.

However in order to get the best results, assist your collection agency by providing with the information they need. Also, once you have submitted a file to a collection agency, get out the way! Let them do their thing. Stop billing the customer, and direct them to the agency if they make contact.

Success in working with a collection depends will also depend on what you are trying to accomplish. Believe it or not, getting paid is not always the goal of business owners when they submit a file to us.

Here are the best and worst reasons to hire a collection agency.
Best: Improve your cash flow

More money in your business means that you can pay your bills on time, give employees a raise, buy new equipment, or start new marketing campaigns.

Best: Save time 

Less time spent chasing non-paying customers means more time to focus on running and growing your business. 

Worst: Revenge

We get it. When customers do not pay you, it makes you angry. However, if you are simply using a collection agency to “get back” or “harass” your customers, you are missing the mark. Periodically I get a call from a prospective customer who will tell me, “I don’t care about the money, just make his life miserable and ruin his credit”. I politely decline. 

Worst: Cheapest rate

A collection agency works on a contingency basis, which means that they do not get paid any money up front, but retain a percentage of money. Rates can vary based on a number of factors: age or nature of the debt being the most common. A low rate is great, because it could lower your overall cost of collection. However, not all low rates are collected equal? What is included in the rate? Be careful of hidden fees for services such as research.

Focus on obtaining the best rate, not the cheapest one.

Best: Avoid drama

Let your collection agency deal with issues. Collection agency staff can not only handle disputes, but can set up payment plans with your customers, and make sure these plans stay on track. 

All in all, hiring a collection agency will be one of the best decisions you make. Just make sure you are doing it for the right reasons. 


Credit Customers: Why People Don’t Pay Their Bills

Posted by Marilyn Miller on June 28, 2019  /   Posted in Uncategorized

Small business customer credit allows you to increase sales and grow your business. However, business owners must be smart about extending credit. Not all customers deserve to receive the same credit terms. Credit agreements must be in writing. Your customer credit contracts are invaluable.

To put it simply, there are three  this condition that create delinquency.

People do not pay their bills due to poor credit practices on their part, poor credit practices on the creditors part, and catastrophic life events.

Customers who do not pay due to their own poor credit practices are the kinds of customer who do not care about the credit rating. They may be irresponsible, overwhelmed or simply believe they do not have to pay. These customers are typically the ones who are referred for collection. Depending on the specific reasons, they may agree to pay the debt in installments while others may have to referred for legal action.

Other customers do not pay due to creditor actions. Yes, I said that. People may not be paying based on something you did or do not do. If you do not send bills promptly or if your bills are difficult to understand, you may be giving a customer an excuse not to pay you. I recently received a medical bill from a pediatric practice. Since my kids are grown, I knew it was a mistake. I called the office and learned that the bill was valid, but that the practice billed everything under an affiliated pediatric group. How confusing!

Other times, small business customer credit goes awry when the creditor does tell the customer upfront what services will cost, and what will and will not be included. For example, a contractor should communicate the applicable hourly rate and minimum charge before going to do the job. A simple email confirming the details of price and service can serve as a simple contract.

Take time to put together a customer contract. Bill promptly. Make sure customers know how and when you want to be paid. Do not be afraid to pick up the phone to speak to customers as soon as they become delinquent.

Customers who do not pay based on catastrophic life events are often the most difficult for recovery. Today, the most common catastrophic life event is either the loss of a job, or an accident or illness that produces a large medical bill. Your best bet in this situation is to do your best to be patient and work to with customers to pay in installments. We set up payment plans all the time with who are out of work. Usually, we begin with small payments and reassess every few months, with the understanding that payments will increase if employment is secured. Some people may become too overwhelmed and declare bankruptcy which could mean you have to walk away. With patience and compassion, however, you will find that even when times are the toughest, many customers want to do the right thing.

Accounts Receivable Management: Not a Spectator Sport

Posted by Marilyn Miller on June 25, 2019  /   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, i.e, 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!





Medical and Dental Debt Collection and Large Deductibles

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

Medical debt collection is different today as larger insurance deductibles and higher out-of-pocket costs are passed on to consumers.  

Now more than ever, communication with patients is important. 

Health insurance policies are confusing. Many medical debt collection problems can be avoided if you clearly communicate your payment expectations and policies. Also, while it is true that patients should know what their policy covers and how much they can expect to pay out of pocket, in reality, you really need to help them understand. 

Whenever possible, verify insurance  before each visit. Review benefit terms and limitations in writing with the patient. Ask them to sign the review and keep it in their chart.

The number one question I hear from patients placed in collections is, “Why didn’t my insurance pay?”

When we take the time to walk someone through the insurance billing – sometimes explaining what terms like deductible, co-insurance, etc mean – most of the time they pay the bill or enter into a payment plan.

If a patient has a large deductible, ask them to sign an acknowledgment of that fact, as a separate document and keep in their chart. This one step will save problems down the road.

Make it easy for patients to pay you.

Clearly indicate your hours of operation if you allow patients to make payments in person. Consider an online payment portal. 

If patients enter into a payment plan with you, make certain the plan is in writing and that the patients signs the form. Remember that a signed payment plan is a sort of contract, and a contract must be bilateral, meaning both parties must agree. Oral contracts are not enough – they subject you to the memory of someone else. Get it in writing!

Explain to patients that patient responsibility is based on their insurance policy, and that you are simply following the terms and conditions of their policy. I am not sure why, but some patients want to blame their physician, (and by extension, the collection agency) for any out of pocket costs. Patients should be informed (and agree, in writing) that their insurance contract is between insurer and patient, and that they are responsible for the cost of treatment. 

I know, I know…you do not need more paperwork. However, if you set your systems up right at the beginning, the process should flow smoothly, and the documentation will benefit you in the long run. 



Small Business Debt Collection: How to Get it Right

Posted by Marilyn Miller on June 17, 2019  /   Posted in Uncategorized

Small business debt collection is too often and afterthought. In many small businesses, management, sales and customer service functions are not distinctively defined which could make it difficult to assign responsibilities and tasks. Sales is king, particularly in competitive fees, and new customers are often not assessed to determine if they ared creditworthy. Monitoring accounts receivable becomes too difficult, and “bean-counters” who advocate for caution are seen as the enemy of new business growth.  Small business owners often tell me they are simply “too busy” growing and managing their business to worry about customers not paying. Unfortunately, the inattention often becomes a crisis when cash flow suffers. In these cases, panic ensues and the business will pull back credit lines, which of course, makes them less competitive. New hires or investments in technology or equipment become more difficult.

How do you juggle your many hats to include small business debt collection?

Small business debt collection involves a commitment to a process. Small business owners must promote a culture that emphasizes smart credit risk management as much as it emphasizes new business growth. It is team effort involving management, sales and customer service.

Small business debt collection can be successful in a business of any size.

Entrepreneurs who “do it all” can and must commit to spending a block of time on making sure they are getting paid on time, and following up on delinquent customers. If you are lucky enough to have a staff, you must design a process to monitor your accounts receivable and empower one person in your organization to manage it.

If you are going to extend credit to customers, you must do it in a smart way. Think like a bank. Gather information on your customers and use it to make a sound credit decision.

Customer credit arrangements must be in writing, in the form of a customer contract. If you do not have time for complex contract, simply outline (in writing) the details of your arrangements – when you expect payment and what happens if payments are not made on time – in an email. Ask customer to email back their consent, and you have a simple contract.

Set your process to recover payments from delinquent customers. Use a collection letter as your first step and do not delay to hire a debt collection agency if you need to do so.

Small business debt collection does not have to complex. It merely needs to be a priority.

Collection Agency: Don’t Fault Them If…..

Posted by Marilyn Miller on June 12, 2019  /   Posted in Uncategorized

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.

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