Customer Credit: Why People Do Not Pay Their Bills (And What You Can Do)

Posted by Marilyn Miller on November 16, 2018  /   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.

 

 

Maine Collection Agencies: How Can They Help Your Business

Posted by Marilyn Miller on November 14, 2018  /   Posted in Uncategorized

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Collection Agencies and Payment Plans

Posted by Marilyn Miller on November 12, 2018  /   Posted in Uncategorized

Collection agencies make a number of mistakes, but refusing to accept a payment plan should not be one of them. We recently collected a file that was very close to be not collectible because of the statute of limitations. Why were we successful? We offered her a payment plan. The consumer was elderly and told us that the previous collection agency refused to allow her to make monthly payments. We set up an auto monthly payment with her credit card, and sent her a written confirmation. She was so overjoyed that she offered to send our client a letter praising our efforts.

Many consumers become overwhelmed by the total amount of a debt, but if you break it down for them, it often becomes manageable. It is important to remember some simple rules about payment plans.

Document. Document! DOCUMENT! Memories fail us. It is important to detail of the plan in writing and make sure both parties sign to indicate their agreement:

1. Amount of money to be paid, number of installments, number of installments (Example: “…will pay the sum of one thousand dollars ($ 1,000 USD), payable in 10 equal installments of 100.00 each)

2. When, where, and how each payment is to be made – exact details. (Example: Payments should be made payable to {Company Name} must be mailed to {Company Name, Full Address} so that payments are received by the 15th of every month.) Also, don’t forget that this agreement should list whether interest will accrue on unpaid balance.

3. Consequences for default on agreement – Will default void the agreement? Will you charge a late payment fee? Will the file be sent to a debt collector? Make sure to specifically detail what happens if the terms are not met exactly as agreed. 

There are also several ways you can use payment plans to enhance your cash flow and make it easier for people to pay you. 

1. Obtain a larger down payment up front with small back end payments.

2. Consider an online payment portal. Ours has increased payments by 30%.

3. Accept all forms of payment, including PayPal, Apple Pay, Venmo, or even chickens. Whatever it takes!

4. Set up automatic credit/debit payments, keeping a card on file (VERY important to get a signed consent to use the card in the case of any dispute)

5. Payment coupons – Very old school, but some people like them. Some people like a monthly statement and envelope.

6. Offer an incentive for early payment of balance.

Be smart about your payment plans and make sure your collection agencies are too. Remember that people are busy. Make it easy for them to pay. Convenience is key!

Collection Agency or Attorney: Choose the Best Option for Your Business

Posted by Marilyn Miller on November 07, 2018  /   Posted in Uncategorized

I am often asked to comment on which option – a collection agency or attorney is best for collecting bad debt. The simple truth is that one size does not fit all. Each option has its benefits and the best option has to be based on your specific collection needs:

Size and number of files – Attorneys generally litigate. If you have a large number of files of varying amounts, litigation will not always make sense. A collection agency is equipped to reach debtors by both mail and telephonic contact. A law firm may want to work only on the larger files, or will send only one demand to files under, say $1,000.  A collection agency certainly can handle larger files, depending on the nature of the file.

Location – If your customers are in various states, an attorney may be unable or unwilling to help you, or you may have to retain different lawyers for different locations. Many collection agencies are multi-state, and some are national in scope.

Rate basis and out-of-pocket costs –  Whether you choose a collection agency or attorney, always ask for a contingency rate versus flat or hourly. A contingent rate means that you will not pay anything up front, and receive a percentage of sums collected.  Also, ask for an estimate of out of pocket costs. What is included in your rate and what is extra?  If your attorney is going to litigate, you will likely have to front the costs and get them reimbursed when the money is collected. Court costs vary, but they can cost you hundreds of dollars, which brings up the next factor – actual collection of the funds.

Post Judgment Collection – If you hire an attorney and are awarded a judgment, the court does not collect the money for you. Getting a judgment is one thing – getting paid is another. In some states up to 80% of judgments go unpaid. I have been asked many times to collect judgments obtained by attorneys. Make sure collection agency or attorney has the experience and is willing to pursue post-judgment collection.

Research Capability – Over half of the delinquent customer files need some sort of research to locate debtors or their assets. You make sure the collection partner you choose has the experience and tools for quality research. Also, you should never pay an additional fee for research.

Credit Reporting – Reporting debts to credit bureaus is often cited as the key benefit of hiring a collection agency. I disagree. First of all, credit bureau reporting laws have been changed to limit the types of files that can be reported by requiring information you may or may not have on the customers, such as date of birth or social security number. Also, the credit agencies have limited the impact of some types of debt to the credit score, making credit reporting have much less impact. Lastly, reporting a debt may make you feel good, but it will not in many cases get you paid. The key benefit of using a collection agency should be their ability to focus on your files, and make a consistent and prolonged effort to get recover for you.

Focus and Experience – Make sure the collection agency or attorney has experience collecting for your type of business. Use a collection agency or attorneys who specialize in debt collection. The attorney who did a great job on your will may not be the best choice. Also, whoever you choose has to be versed in the various collection and credit reporting laws such as the FDCPA and FCRA.

The best option is to find a collection agency that has relationships with attorneys. If the collection agency cannot collect the debt, they can research the file to see if litigation makes sense. They can also assist the attorney with post judgment collection. Therefore if you are hiring a collection agency, make sure they attorney relationships and get the best of both worlds!

Top Small Business Credit and Collections Mistakes

Posted by Marilyn Miller on November 05, 2018  /   Posted in Uncategorized

Small business owners provide credit to customers for several reasons.  Credit terms allow them to remain competitive and grow sales. However, if credit is not extended in a smart way, delinquent accounts receivables could grow. Great sales growth means nothing if customers do not pay. You are using a money bag with a huge hole in the bottom!

Small business owners wear many hats. They are busy. Busy people often make mistakes, and small business owners make credit and collections mistakes that can cost dearly. Let’s look at the top small business credit and collections mistakes and how to avoid them.

In a rush to win a new customers, small business owners neglect to take the time to gather and evaluate information about a potential credit customer.

At very least, ask customers to complete an application with basic information. Imagine going to you bank and securing a small business loan without giving the bank any information. Think like a bank! Make an informed decision. It takes a little time and effort, but it is important. If you do not have time to underwrite every customers, select those companies that are new, untested businesses or businesses asking for a larger line of credit.

A contract improves customer communication and protects your business, yet many small businesses owners never use a customer contract.

Customer contracts can literally make the difference between you getting paid and getting stiffed. Contracts do not have to be complicated – even a brief email confirming details of how payments are to be made can serve as a basic contract. Legally, you cannot charge finance charges or late fees unless a customer has agreed to them in writing, in advance. Similarly, if a customer defaults, a contract help you recover all or part of your collection costs.

Small business owners must commit to a regular review of aging accounts receivables and have a plan to recover from delinquent customers.

It’s 90 days, do you know where your receivables are?

A small business owner must know, or have an employee who knows how many accounts are 30/60/90+ overdue at all times. A simple process to follow up with delinquent customers by phone and with a collection letter will make a big difference.

The management of accounts receivables is as important as new business sales, human resources or any other aspect of a small business, and should be treated as such.

Small businesses wait too long to hire a collection agency.

After initial efforts, bring in the experts. Small business owners will hesitate to hire a collection agency either because they want to be “nice” or because they do not want to “lose” part of the sum outstanding. In both cases. they are doing themselves no favor.

Collection agencies traditionally work with a contingency fee, which means they charge a percentage of whatever is recovered. Older debts mean higher fees, thus increasing the cost of collection.

The good news is that all of these mistakes are easily corrected. A thoughtful, informed approach to extending credit to customers and prompt action when customers do not pay on time will make a huge difference on your bottom line.

Paying Customers: If You Build It, They Will Come

Posted by Marilyn Miller on November 02, 2018  /   Posted in Uncategorized

Getting paid on time is every small business owner’s dream. However, many business owners  take for granted that their customers know how and when they want to be paid. Sometimes, they don’t. If you make communicate to your customers and make it easy for them to pay you on time, they will.

Remember the film Field of Dreams? The main character (an Iowa farmer portrayed by Kevin Costner)hears a voice in a cornfield one day. It says, “If you build it, they will come” Costner listens to the voice, mows down his crops and build a baseball diamond in the middle of nowhere. He builds it…and “they” come.

If you build system for getting paid on time, then “they” (paying customers) will come. I have been in the financial world for over 25 years, and I believe that most people want to pay what they owe. I also believe that the more effectively you communicate how and when you expect to be paid and make it easy for people to pay you, the more likely you are to be paid on time, most of the time.

I get my electric bill every month on the same day, by email. I can pay it with two mouse clicks. It is amazingly simple, and I pay it instantly every month.

 

Your payment terms must be clearly communicated to customers before you do the work, and then reinforced when you bill them. Use a contract, even a simple one, to outline your payment terms. It is not enough simply to payment terms on your invoice afterwards. Customer must agree in writing beforehand.

Once you have a customer, how do you make it easy for people to pay you?

  • Follow up with your customer immediately after the job is finished. Make sure you have the right billing contact. Use the opportunity to thank them and ask that they are pleased with your service.
  • Your bills must be sent promptly and must be easy to understand. Sending them consistently on the same day every month should be your goal. Remember, you are trying to build good paying habits with your customer, so show them your good billing practices.
  • Require a deposit before you start a project. Customers with skin in the game are more likely to want to continue paying.
  • As your customers how they wish to receive their bills. These days many customers want to receive their bills by email.
  • Offer a discount for prompt payment. You will be surprised how many people will take advantage of your offer.
  • Accept credit and debits cards, ACH, PayPalApplePay and any other method of payment.
  • Consider a payment portal on your website. I have one, and its use increases every month.
  • Offer payment plans. Make sure to document them, with terms for repayment as well as the consequences if the payment plan is not followed.

Getting paid on time is not really hard. You can control it, and you should.

Debt Collection: The Tricks and The Treats

Posted by Marilyn Miller on October 31, 2018  /   Posted in Uncategorized

Debt collection, I am guessing is not one of the favorite parts of your job. You either see it as a necessary evil, or possibly avoid it altogether. You know that if you can get it right, it will benefit your business, but how do you make it work?

Well this Halloween, let’s look at some ideas – some “tricks” to make debt collection more effective, and some “treats” you can bring to your business.

To best the best results you must commit to a consistent effort to stay on top of your receivables and reaching out to delinquent customers. Your first step is to make one person manage the process. If you are an entrepreneur, you’re it! If you are lucky to have a qualified person, make certain that they are empowered to do the job. Create an environment that will enable them to succeed by communicating that their task is just as important as new business sales, customer service or daily operations.

One of the best things you can do involves what I call a “customer service approach to debt collection”. Shortly after you deliver your product or service, contact the customer to thank them for the business and ask if they are satisfied with the outcome. Use the opportunity to confirm their contact information, or to gather new information such as an email address. Ask them how they would like to receive their bill. Remind customer of how they can pay you: which credit cards you accept, where to mail check payment, or how they can make an online payment.

Your “customer service collection” call could also be an opportunity to offer to take the payment over the phone. You can offer a small discount for immediate payment. A discount of even a few percentage points can be surprisingly  enticing to some people.  Make sure your customer knows the discount applies only for a limited time.

Design a protocol for your in-house debt collection process that includes review of delinquent customers, and follow up with a collection letter and phone call. After your initial effort, if you are being ignored, or if a customer flatly refuses to pay, do not hesitate to cut your losses, and hire a debt collection agency to help you.

The benefits – or “treats” you can enjoy will be better cash flow, better customer communication, and if you can organize and stick to the process, you and your staff will spend less time chasing delinquent customers, and more time chasing new business.

Happy Halloween!

Debt Collection and Credit Reporting – Does it Work?

Posted by Marilyn Miller on October 22, 2018  /   Posted in Uncategorized

Credit reporting and debt collection are not the same thing. Reporting delinquent debts to the credit reporting agencies Equifax, Experian and Transunion is one of the tools that can be used to help collect a debt. Many people believe it to be the most important thing a collection agency can do for them, but it is only one tool. And, in my opinion, many collection agencies rely too heavily on it. Let me explain.

Not getting paid stinks. It is an insult and a betrayal of trust. Although it is a business issue, it feels personal. You are angry and call a collection agency to help recover the money owed to you. The first thing you tell your collection agency is that you want the debt reported to the credit bureau because you do not want your customer to “get away with it”.

There is a huge problem with that type of thinking. Your customer has already gotten away with not paying you. You have nothing – zero. So instead of focusing on getting back at the customer, focus on recovering as much as you can.

This is where the collection agency comes in. Ask your collection agency what they will do to recover for you. If credit bureau reporting is the first thing they tell you, it likely means that is pretty much all they are doing. Perhaps they are sending a letter and making a few calls, but after a month or so, the debt is parked on your customer’s credit report and nothing new happens.

So does credit reporting actually help collect a debt? It can motivate your customer to pay the bill so as to avoid the impact to their credit score. Also, there is a chance that even if your customer does not care about their credit score today, they will at some point in the future. Federal and state laws vary on how long debts can be reported, but the “future” could be years from now though. How long do you want to wait? What is your collection agency doing in the meantime?

In my experience, most people sent to collections are not primarily concerned with their credit scores. It may be an issue, but it is not the most important issue. The most important issue, the one we hear again and again is just not having the ability to pay. Therefore it makes sense to work with people and get them into affordable payment plans, rather than punish them for something that may be totally out of their control. Even for those customers that intentionally stiff you, your focus should not be on getting even with them. Your goal, and the goal of your collection agency should be to recover as much money as possible. It can be done without credit reporting. I know – I have been doing it for 14 years.

As of July 1, 2017, credit reporting agencies were also required to remove many debts that did not have key identifying information on such as social security number and date of birth. Going forward, if do not have complete information on customers, the credit bureaus may be unable to accept reportings. The impact of medical debt on a credit score has also been minimized So an active plan for recovery becomes even more important.

Credit reporting and debt collection, therefore, are two distinct things. One is a tool that may or may not work, and the other is a process – an action word. What actions you and your collection agency take will make the difference in getting you paid.

 

Collection Agency – We Are Not Free

Posted by Marilyn Miller on October 19, 2018  /   Posted in Uncategorized

If you decide to hire a collection agency to help you recover money owed to you, have you made a good decision? It all depends on the reasons you are choosing a collection agency.

Here are some good reasons to hire a collection agency:

  • You and your employees are spending too much time chasing delinquent customers.
  • You are having trouble paying your creditors because customers are not paying you.
  • A growing number of customers are over 90 days delinquent, and you are not sure why.
  • Customers have moved or changed their phone numbers and you can no longer contact them.

Here are some bad reasons to hire a collection agency:

  • You just want to get back at someone and think  a collection agency will harass and abuse people.
  • You do not really want to collect the money. You just want to “ruin their credit” and believe a collection agency can do that for you.
  • You have another collection agency or attorney working for you on the same files at the same time, basically pitting the two against one another.
  • You know that you really need to hire an attorney, but you do not want to pay a retainer and you believe since collection agencies work on contingency that they are “free”.

It is the final reason, the belief that a collection agency is somehow free that is the most ridiculous. You are in business for many reasons, among them the desire to make a living. A collection agency is no different. We want to help our customers, and we are passionate about their right to be paid. However, we too have to make a living. we do not charge any money up front, but rather take a percentage of money we recover.

When we take on a new customer, we do so with the belief that we can collect money for them, and thereby earn a commission. It is often a leap of faith since we do not know much about the debtor or the circumstances that produced the debt. We are willing to take that leap based on our experience. However, if we are not provided with complete and accurate information, it becomes more difficult to get the best results. If we are not told the “whole story” by you, we will likely learn it from the debtor once we make contact. At that point, we will question whether or not you are serious about working with us. If we feel you are wasting our time, we will lose the will to work on your files. In that case, everyone loses, except the customer who got your product or service for free.

Do not make the mistake of believing that because a collection agency does not charge a fee up front, that they are free. A collection agency makes an investment of their time and effort to recover bad debt for you. If you respect that investment, the rewards to both you and your collection agency will make it worthwhile.

 

 

 

 

How to Control the Cost of Debt Collection

Posted by Marilyn Miller on October 01, 2018  /   Posted in Uncategorized

Debt collection costs – who doesn’t hate them? I get it. You don’t get paid and have to pay someone to get your money for you. It stinks.

On the other hand, bad debt sitting on your books doesn’t do anything for you and your business. You can’t use it to grow your business or pay your employees. You have to convert those receivables into cash and to do that, you have to recover bad debt. With bad debt, something really is better than nothing.

How do you control your costs of collection? The first step is your own consistent effort to stay on top of the aging of your receivables. You must have a plan and procedure in place and you must stick to it. The better you get at your own in-house collection, the more you can keep the costs of debt collection to a minimum.

Even with the best efforts, some bad debts need to be referred for outside collection. If you have not collected the money in 90 days, you have to consider hiring a collection agency. The number one factor that drives up collection agency fees is the aging of the debt. Collection agency fees are higher for older debts. You are not doing yourself any favors hanging on debts, hoping your customers will pay you. In addition to higher fees, there are some hidden “soft costs of delay” Get help!

Debt collection costs are about more than the rate a collection agency charges. Do you have a customer contract? If you do, you may be able to charge interest and/or recover some or all of your collection costs.

So, the top three things you can do to lower your debt collection costs are:

  1. Recover as much as you can in-house using smart and consistent procedure.
  2. Don’t hold on to the debt too long.
  3. Maximize your recovery by adding contractual language to include interest and costs of collection.

How do you manage your debt collection costs?

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