Debt Collection: Got Leverage? Use It!

Posted by Marilyn Miller on December 15, 2017  /   Posted in Uncategorized

Debt collection can be a relatively simple process if people want to pay you and have the means to do so. Customers who have simply gotten behind due to unforeseen expenses will, with a little push from you, may do the right thing. What happens if they don’t?  What happens when a customer refuses to pay?

There are many factors that can incentivize customers to pay you. One of the most powerful tools you may have is leverage. Leverage is the ability to without future product or service until your bill is paid. Not all business owners have the opportunity to use leverage. If you do have leverage use it to help recover delinquent accounts receivables.

A classic example of using leverage to get paid comes from the movie Ghostbusters. A snooty hotel manager refuses to pay the exhorbitant bill presented to him for the removal of ghosts from his hotel ballroom. Bill Murray’s character, Dr Peter Venkman, offers to return the ghosts, which, of course would be disastrous for the hotel. Leverage!

Sometimes people give away their leverage, making it more difficult to get paid. Yesterday I received a new business inquiry who had obtained a small claims judgment but had not gotten paid. As we spoke, I learned that the judgment was against his former wife, who lived in the house with him along with their children. He was not willing to change his living situation, and I told him I thought in his current situation he had very little opportunity for payment.

Similarly, too many small business owners continue to provide customers with large outstanding balances product of service. Although in some cases, particularly in the medical field, it is difficult, perhaps impossible to deny service, it is important to set limits.

Here are some examples of customer debt collection using leverage successfully:

  1. Pediatrician requires payment on account in order for parent to receive camp or school physical form.
  2. Orthodontist requiring full payment for braces to be removed.
  3. On first cold day, home heating oil company requiring full payment on old balance before new fuel is delivered.
  4. Manufacturer combining new orders at a discount if old balance paid.

In some cases you can cut a customer off entirely. In other cases, you may only be able to limit them. Whatever you do, make certain to always require at least some payment. Remember, every time a customer makes a payment, they increase the statute of limitations, the time period you have to legally collect the debt.

 

Collection Agencies: Are They Too Expensive?

Posted by Marilyn Miller on December 13, 2017  /   Posted in Uncategorized

 

 

 

 

 

 

 

 

 

Collection agencies usually do not charge a fee upfront and charge a contingency rate, which is a percentage of sums collected. Typically, no fee is due if no collection is made. Many small business owners find this approach preferable than spending money on an attorney retainer or spending their own time and money using the Small Claims System. A good collection agency can assist a small business by recovering money that can be put back into the business.

Still, we continue to hear small business owners wonder if hiring a collection agency is “worth it”, or argue that collection agencies are “too expensive”. Here are my thoughts on these issues:

  • Accounts receivables are a promise to pay. Delinquent accounts receivables are broken promises to pay. When you hire a collection agency, you have nothing – zero – except a broken promise to pay. Collection agencies turn nothing into something. The “something” can then be used to grow your business or pay your employees.
  • Collection agencies take a leap of faith when they work with you. Like you, they are in business to make a profit, and they take on your files without knowing for sure if they can be collected.
  • It goes without saying that collection agencies are incentivized to get results for you, because they want to get paid too. Let them do their job. Give them any information that will help them. Respect and partner with your agency.
  • Collection agencies get burned along with you if a customer declares bankruptcy. If it happens, there is likely nothing that can be done. If it happens, do not blame your agency.
  • There are a good number of excellent collection agencies out there so you should be able to negotiate a competitive rate. DO NOT, however focus only on the rate. Not all rates are the same. Some low rates have hidden fees or mean collection agencies will provide limited services to you. Know what is in your rate!

Money sitting on your books uncollected is worthless to you. If you think you cannot afford a collection agency, I would argue that you cannot afford not to!

 

 

 

 

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

Posted by Marilyn Miller on December 11, 2017  /   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 orcontingency. 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.

Collection Agency Results: How to Improve Them

Posted by Marilyn Miller on December 06, 2017  /   Posted in Uncategorized

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

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

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

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

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

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

Medical Debt Collection is All About Communication

Posted by Marilyn Miller on December 04, 2017  /   Posted in Uncategorized

Medical debt collection has been in the news lately because more and more Americans are unable to pay what they owe because of higher out of pocket medical costs. There are differing arguments, based mainly on political ideology for a better healthcare/insurance system. However, the system we have today provides both challenges opportunities for health care provider.

Each part of your service delivery provides an opportunity to communicate, and better communication can prevent problems down the road.

New Patient Intake – Before a patient is seen, collect as much information as you can. Many practices have their patient forms online and require them to be completed and provided at the first visit. This is great, except that insurance information should be collected and verified well before the first visit. Many of the bills we see come for collection involve inactive insurance policies that were not presented until the date of service. As much as practical, verify insurance before the first visit and make sure to communicate information on any out-of-pocket costs to the patient.

Patient Financial Responsibility – Each new patient should sign a statement promising to pay any out of pocket costs. The statement should inform patients when you expect to be paid and the types of payment plans you are willing to accept. Update each year.

Patient Billing – Once insurance has processed the claim, patient statements should be sent that clearly indicate charges, payments and adjustments. Bill promptly and regularly.

Collection Letters – If, infortunately, patients fail to pay you on time, have a collection letter ready to send out. Your letter should be polite but firm. Again, give a specfic time period for payment. You can also send a second letter with increasing urgency, and advise patient that you will take further collection action if payment is not received by the due date.

Medical debt collection starts when the patient walks in the door. Better communication means fewer files referred to your collection agency.

Collection Agencies: You Hate Them Until You Need Them

Posted by Marilyn Miller on November 24, 2017  /   Posted in Uncategorized

Google “collection agency”. You will see a ton of articles about what to do if you are contacted (“harassed”) by a collection agencies, as well as advertisements from attorneys willing to prosecute your Fair Debt Collection Practices Act (FDCPA) claim against an agency.

Believe it or not, reputable collection agencies (and most are reputable) believe in the FDCPA and work hard to comply with the law. The advice I always give to small business owners looking to hire a collection agency is to ask about an FDCPA training program for their collectors – a must to make certain your customers will be treated with respect.

collection_agency_evilDon’t get me wrong, there are abuses. However, the debt collection industry is like any other, with good and bad players. The debt collection industry represents the largest source of complaints to the Consumer Financial Protection Bureau. However, there is some feeling that the methods of data collection used by CFPB might not accurately reflect consumer issues with debt collectors.

Of course, my industry may be unique in we are often resented by both our collection clients and the people who owe them money. Our clients see us as a necessary evil, and the resentment they feel about not being paid often transfers to the collection agency when they see a portion of their hard-earned money going to collection agency fees, truly adding insult in injury.

What are the other options?  Do it yourself? Sure, you should have a program in place to collect as much as you can in-house. A good consistent program will certainly cut down on the files you need to refer for outside collection. Hire an attorney? Yes, some cases can be settled by an attorney, but not all files are right for litigation, and there is are still costs associated?. Just ignore the delinquent accounts and take a tax write-off? Well, that rarely gives you much relief, if it helps at all.

Consider a recent study done by Fundbox that reported some $825 billion in unpaid invoices to small businesses in the US alone. The study conjectured that if all unpaid invoices were paid on time, small businesses across the country could hire 2.1 million new employees, thereby reducing unemployment by 27 percent – how is that for a jobs program?

Not getting paid by customers can also mean that you are unable to grow your business by physical expansion, purchase of equipment, sales and marketing. You may even have to raise your prices.

The collection industry’s trade Association, ACA International reported that in 2013, third party collection agencies returned nearly $50 billion to their customers.

Still hate us?

Collection Agency Results: How To Improve Them

Posted by Marilyn Miller on November 22, 2017  /   Posted in Uncategorized

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

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

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

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

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

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

Collection Agency: Is Your Rate Truly Competitive?

Posted by Marilyn Miller on November 20, 2017  /   Posted in Uncategorized

Since I run a small business debt collection agency, I often get calls from prospective clients who are only interested in our rate and do not want any other information. It is frustrating to me because I believe that each client is different and the same rate should not always apply.

Like any business, a collection agency is started to make money. If your collection agency charges a rate that makes no profit, they will not be able to continue in business.

You get what you pay for.  A contingency debt collection fee means that no money is paid upfront and the agency is compensated with a percentage of monies recovered. Rates can vary based on many factors: the aging of the debt, volume of accounts placed, or size of the file placed. The contingency fee (i.e, no fee until money is collected) should support the amount of activity that will be needed to recover the money owed. While we all certainly want to manage the overall cost of collection, a low rate is not always what it appears to be.

Years ago a prospective client, a dentist, told us that he had over 200 delinquent patient accounts and had made an arrangement with an agency that gave him a very low rate. After 18 months, the agency had recovered only $1,200 for him and told him that in order to proceed to “Stage 2 Collections”, a high rate would be needed. What good did the low rate do other than collect a few files that likely would have been paid anyway.

All contingency rates offered by collection agencies are not the same. Some rates are all inclusive, while others provide very basic services and add charges for activities that are essential for successful recovery. So, the low rate is not really low at all.  For example, I once reviewed an collection agency agreement for a customer. His “low” rate did not apply to any file under $250.00 or any file that needed research (40-50% of collection files do). Legal fees were also not included in the rate. It turned out that the great rate he thought he had only applied to a third of his files. Never pay additional fees for research. It is part of what a debt collector does to get the job done, and should be included in the rate.

A contingent collection agency rate should require no upfront expense. The collection agency is has an incentive to work hard to recover bad debt as they receive no compensation at all if unsuccessful. The contingency fee should be structured to include all services necessary to get the job done.

There are many collection agencies to choose from, and finding an attractive contingency rate should be easy. If you are lucky to land a very low rate, watch to make sure you are getting the very best results from your collection agency. A low rate means nothing if the agency does not recover your money.

Small Business Debt Collection: What Convinces People to Pay Their Bill?

Posted by Marilyn Miller on November 17, 2017  /   Posted in Uncategorized

Small business debt collection is both rewarding and frustrating. It is rewarding when your efforts to recover bad debt are succcessful. It is frustrating when it consumes too much of your time. It is also disheartening to small business owners when they do not get paid. In every case, small business debt collection can be more effective if you know the thins to do that will convince people to pay you.

Smart payment plans – Sometimes people to not pay because they simply do not have the money. Giving them the opportunity to pay you what they can afford each month. You must however, document the plan and get them to sign their agreement. If you can, get a deposit or downpayment, even a small one. Customers with “skin in the game” may be more likely to pay the balance owed.

Leverage – If you have a product or service that your customer wants, and if they owe you money, use that leverage to get the old balance paid. Be creative. Roll the old balance into a new one. If you can, stop providing new service or product until the balance is paid in full.

Communication – Your bills should detailed and easy to understand. When a customer defaults on payment, a collection letter should be sent to the patient that lets them know you are serious about getting paid. Get on the phone and speak with key customers in an attempt to work something out.

Easy of payment – Give customers a variety of ways to pay you. Know your customers and how they pay, and respond to their needs and preferences. If your customers want to mail you a check payment, provide an envelope with your bill. If your customers want to pay their bills online, give them the opportunity to do so.

Escalation – Some people are only going to pay you if you escalate the matter by sending it to your collection agency or filing a suit in Small Claims Suit.

Not every approach works for every customer. You will see fhat if you can figure what “turns” a file, then your small business debt collection efforts will be more successful and rewarding.

 

Maine Collection Agency: How to Choose the Right One

Posted by Marilyn Miller on November 15, 2017  /   Posted in Uncategorized

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

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

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

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

Other factors to consider are:

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

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

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

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

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

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

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

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

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

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