Collection Agency: How Do You Know That You Need to Hire One?

Posted by Paul Miller on May 25, 2017  /   Posted in Uncategorized

A collection agency can save you a good deal of time by taking over the recovery of your delinquent customer accounts. They can also improve your cash flow and put money back into your business – money you can use to expand your business.

Your agency should be a trusted partner, just like your attorney, banker or accountant. To get the very best results, you must communicate your collection needs, and find an agency that will best meet them.

Time is moneyWe always recommend that you have a good system to collect as much as you can on your own. However, there comes a point when you need to bring in the experts. So how do you know when the time is right to hire an agency?

If you and your staff seem to be spending more and more time chasing delinquent customers, or if you do not feel the time you are spending is worth the amount of money you are recovering, it is time to hire a collection agency.

If the number of delinquent customers over 90 days past due is increasing, it is time to hire a collection agency.

If you have an increasing number of customers who you cannot locate, it is time to hire a collection agency.

If your cash flow is terrible and you are having trouble paying your own bills because customers are not paying you, it is time to hire a collection agency.

If you are borrowing money to keep your business going but have a good number of outstanding receivables, it is time to hire a collection agency.

If you have tried Small Claims Court without success, it is time to hire a collection agency.

Hiring a good agency could be one of the smartest decisions you make for your business. If you are letting customers go more than 90 days past due, you are doing yourself a disservice. The collection agency fees are not that steep, and increased cash flow will make it worthwhile.

Small Business Debt Collection: The Top 5 Mistakes

Posted by Paul Miller on May 24, 2017  /   Posted in Uncategorized

small business debt collection










Small business debt collection is not easy. However, many business owners make it more difficult than it needs to be.

Here are the top 5 mistakes small business owners make with respect to bad debt collection: 

Lack of focus on aging of receivables, and no in-house system to follow up with delinquent customers – Small business owners are busy. They must manage the day to day operations of their business and also handle new business sales and customer service. It is very easy for a growing small business to fall in the trap of letting delinquent customers go too long without paying, simply because they are too busy. A healthy small business puts their credit and collections procedures front and center with the same priority as sales and customer service. We advise small businesses to look at how their bank manages their credit risk, and do the same. 

 Nothing in writing – A contract that outlines your expectations for payment and the consequences of non-payment is a must. 

Not gathering enough or not updating customer information – If you are going to give a customer credit, you have the right to ask for information. You should update the information of repeat customers annually, at a minimum. Having good current customer information will make it easier to recover bad debt.  

Waiting too long to hire a collection agency – In house collection efforts should be short term, around 90 days, and then it is time to bring in an expert. The cost of collection agency will certainly be less than having to write off the entire debt. 

Hiring the wrong collection partner – Some companies hire a collection agency with the lowest debt collection fees, only to find out that they really don’t have a partner who is going to work hard to get them paid. Some companies hire an attorney when they need a collection agency, or hire a collection agency when an attorney would get the best results. Take time and research and pick the collection partner that is right for your business.





Collection Agencies and Payment Plans

Posted by Paul Miller on May 23, 2017  /   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 uncollectible 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.

collection agencies payment plansMany 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 and others.

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!


Credit Customers: Are There Some Who Will Never Pay You?

Posted by Paul Miller on May 18, 2017  /   Posted in Uncategorized

Credit customers, as I have said, can help your grow your business, and improve your cash flow. Of course, you have to make certain you give the best terms only to those customers who deserve them. For other customers, you may decide to limit how much credit you extend, or require a deposit. You will have to gather information on a prospective customer and use a customer contract to confirm your terms and conditions. Your contract should be in writing and must be bilateral, meaning both you and customer should sign it. Oral contracts are valid in most states, but if it is not in writing, and your customer’s recollection of the oral contract is different than yours, you have a problem.  Your contract should include a clause about what will happen in the event of non-payment: finance charges, late fees, collection costs. If you do not have these items in a signed contract, you do not have the right to them.

Even with the best planning, there are customers who come along once in a while who simply are never going to pay you. credit customers 5

They fall into several different categories:

Disputes – Theses are customers who dispute your balance, and refuse to pay. Certainly you can take them to court, but for certain customers, it may be too costly to do so. Also, if they have no assets in their name, you will wind up with a judgment you cannot collect. There is a saying that some people are “judgment proof”. Remember though, they may have nothing today, but will have something in the future. So take a good look at these customers and determine if the costs and effort are worth it, and revisit your decision a year from now.

Out of Statute – The statute of limitations is the period of time that you are legally able to collect a debt. In many states, it is 6 years. I do not know why anyone would wait 6 years or more, but it happens all the time. If someone makes a payment, even a small one, you “toll” the statute, which means it starts all over again. Also, if the customer has assets and it makes sense, you can take your case to court and obtain a judgment and you will then have another 10-20 years to collect your money. If you do nothing and let the statute expire, there is nothing you can do. Move on.

Out of Business – If your customer is a business, require a personal guarantee which means that the owners will be personally responsible if the company goes out of business. If you do not have a personal guarantee, then you may be stuck. However, check to make sure the business is in good standing in your state. You can usually find this on the website of your Secretary of State in your state.  We currently have a case for a retailer who owes money, and who has let his corporate filing expire.  Therefore, he is de facto doing business as person, not a corporation. Legally, he may be personally responsible for the debt.

Bankruptcy – It is important to know if a customer is filing a bankruptcy to get rid of, or discharge their debt, or if they are filing to reorganize the way they pay their debts. In the later case, you should file a claim and the court will notify you if you will be paid, and how much you will get paid.

In closing, there are still options in every case, but your options with these credit customers may be limited and time-sensitive. Make sure you stay on top of your receivables!

Credit Customers – What Happens When They Do Not Pay?

Posted by Paul Miller on May 16, 2017  /   Posted in Uncategorized

Credit customers provide you the opportunity to remain competitive with others in your industry by offering flexible payment plans. Credit extension is a great way to grow your business.  However, all customers are not the same, and it is important to manage your accounts receivable aging and give terms only to those customers who deserve it.


Once again, there are 5 types of paying customers:

  • Prompt and Regular
  • Slow but Steady
  • First Round Collections
  • Legal Collections
  • Never Going to Pay

We have already discussed the first two categories, the best payers who will get your best terms.  Can you still extend credit to customers to patients who do not pay you? Let’s look at two types.

First Round Collection – These credit customers, when sent to a collection agency or attorney, pay voluntarily. They want to get back into your good graces. They need your product or service. Customers with seasonal needs often fall into this category. A fuel oil dealer client of ours saw a big rush of payments after the first frost. Require these clients clear up any old balance before you extend any more credit.  After payment, require a deposit or convert them to a cash basis.

When you hire a collection agency, be very clear about your goals – which customers you want to keep and which you wish to discharge. Work with your collection agency and give them all the information they need to get the job done.

Legal Collections – These credit customers are recalcitrant and ignore you completely and will not pay without a legal action. Some will pay when they are sued. For other customers, you will have to obtain a court judgment against them, and then perhaps they will get religion and pay. For still others, you may have to resort to property liens, wage garnishments or other extreme measures. It should go without saying, but these customers should not have any credit with you, and actually should not be customers at all.

When choosing legal collection files, it is very important to make sure you research to make sure the customer has assets to attach, or if you believe they will own something in the future. Remember that the court does not collect the money for you. You or your collection agency still have to get the money.

So, yes, there are times when the more difficult payers can redeem themselves and stay in your good graces. In the end, it is all about managing the risk, and only you can do that.

Credit Customers Who Will Help Grow Your Sales and Cash Flow

Posted by Paul Miller on May 15, 2017  /   Posted in Uncategorized

Credit customers are important to your business. They are important because they can either boost or wreak havoc with your sales, and hence, your cash flow. In a recent article, we discussed the importance of knowing how customers pay in setting credit terms.

Do any of these statements sound familiar?

  •                 “They have always paid on time, but payments are getting further apart”
  •                 “They set up a payment plan but have not made any payments”
  •                 “They are good source of new orders but always pay slowly”
  •                 “Their outstanding balance is way beyond their credit limit”
  •                 “They went out of business. Can I still recover the money they owe me”

We have heard all these statements and more from our collection clients. Each refers to a type of credit customer. To recap, there are 5 types:

  1. Prompt and Regular
  2. Slow but Steady
  3. First Round Collections
  4. Legal Collections
  5. Never Going to Pay

credit_customersOur next few articles will examine each of the categories in further detail. Today, we will look at the first two categories.

Prompt and Regular – You never worry about payments. They pay on time. They deserve the most credit at the best terms. These customers are the bedrock of your credit program, and the ones who will best help you grow your business. The only caveat here is to watch to make sure that these customers do not begin to slip and become less regular in their payments.

Slow but Steady – They are usually long-term customers you count on for regular orders who have always paid, just slowly. They are usually 30-60 days behind, but are a good source of business. Grant them credit, with some restrictions, such as a maximum outstanding over 30 days and a maximum overall credit limit. Your contract with these customers should allow for you to apply finance charges and/or late fees. You can use the offer of waiving interest/late fees to get a balance paid off. Also consider offering a discount for prompt payment. If this customer wants a higher credit limit, you may want to obtain a deposit. If they go beyond 90 days, get on the phone and speak to them.

These are customers are your best customers, so treat them as such. At the same time, make certain you are constantly monitoring your outstanding receivables, and make adjustments whenever necessary.

Bankruptcy: Does it Mean You Will Never Get Paid?

Posted by Paul Miller on May 11, 2017  /   Posted in Uncategorized

Bankruptcy protections were created to give people who have incurred debts greater than their assets or ability to pay. It is intended to make way for a “fresh” debt-free start. However, there is nothing more frustrating to a small business owner than having to walk away from money owed to them when a customer declares bankruptcy.bankruptcy

There are several different kinds of bankruptcy. Generally they fall into two categories – those that discharge, or eliminate debts and those that restructure, or set up payment plans. There are also different types for individuals vs. business.

Once you are made aware that a customer (whether a company or an individual consumer) has filed for bankruptcy, you must not contact them directly as long as the case is active. If you have placed their file for collection agency, you must let them know immediately and they too, must cease contact directly with the debtor. No contact means no contact – no bills, no phone calls, no letters.  If the debtor is represented by an attorney, you may make contact with the attorney. You can also file a proof of claim with the court, and you will get notifications as the case progresses.

Your chances  of bad debt recovery depends on many factors, and there are some important things to keep in mind.

  1. If your customer is a business, do you have a personal guarantee, which means that the customer will personally guarantee debts of the company? If you do,  and the company declares bankruptcy, you may still have the right to pursue the personal guarantor.
  2. If you believe that there are assets that have not been disclosed, or believe for some reason that your debt should be exempted from discharge, you should attend the hearing, and you will have an opportunity to question the debtor.
  3. The debtor has responsibilities while in bankruptcy. If they do not perform their duties, their case may be dismissed. If so, you are free to pursue the debt again.
  4. If the debtor files a repayment plan for debts that is approved by the court, notify the court if the payments are not made according to the plan.
  5. If the debt is discharged, it means that the debt is wiped out, and you cannot recover it. Move on.

Things happen to people and businesses and you cannot foresee every situation, but if you are watching the aging of your receivables, look for signs of trouble and suspend credit, reach out to the debtor to see if you can work out a solution.




Customer Credit: Know Your Customers and How They Pay

Posted by Paul Miller on May 10, 2017  /   Posted in Uncategorized

Customer credit is a great way to increase sales. If you are smart about how you grant your customers credit, you will be ahead of your competition. However, if you do not have a plan or if you have a plan and do not follow it diligently, your cash flow will suffer.

customer_credit_PayFirst and foremost, you need a contract with your customers. Even an informal agreement such as an email with customer agreeing to your payment terms is better than nothing. If your customer is a business, a personal guarantee is important.

So how do you decide how to grant credit: to whom, how much, and for how long. To do so, it is important to understand your customers, and how they pay. Our experience has shown us that there are 5 kinds of “payers”:

Prompt and Regular – You never worry about payments. They pay on time. They deserve the most credit at the best terms.

Slow but Steady – Usually long term customers who you count on for regular orders who have always paid, just slowly. They are usually 30-60 days behind, but are a good source of business. Grant them credit, but watch your outstanding balance. Set a maximum outstanding balance. Offer discounts for prompt payments. If they go beyond 90 days, get on the phone and speak to them.

First Round Collection – These customers, when sent to a collection agency or attorney, pay voluntarily. They want to get back into your good graces. They need your product or service. Customers with seasonal needs often fall into this category. A fuel oil dealer client of ours saw a big rush of payments after the first frost. Require these clients clear up any old balance before you extend any more credit.  After payment, require a deposit or convert them to a cash basis.

Legal Collections – These collection clients will not pay without a legal action. Some will pay when they are sued. For other customers, you will have to obtain a court judgment against them, and then perhaps they will get religion and pay. For still others, you may have to resort to property liens, wage garnishments or other extreme measures. It should go without saying, but these customers should not only not have any credit with you, but should not be customers at all.

Never Going to Pay – Customers who go out of business, have no assets to attach, or who file bankruptcy are almost always a lost cause. Look to see if there is any possibility to recover, but be prepared to walk away.

Customers may move from one group to another, and hopefully you are watching the aging of your receivables and will take the appropriate actions.

Customer credit is a privilege, not a right. Watch your customers, how they pay (or don’t pay), and cash flow will take care of itself.

Statute of Limitations for Debt in Maine: Can You Recover?

Posted by Paul Miller on May 08, 2017  /   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 uncollectible. 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. Why anyone would wait 6 years is beyond me, but it happens all the time.

Time is money

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.  If you get one payment, even a small one, before the statute is up, you restart, or “toll” the statute. 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. To my mind, 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.

What Accounts Receivables and Spring Cleaning Have in Common

Posted by Paul Miller on May 04, 2017  /   Posted in Uncategorized

“My idea of housework is to sweep the room with a glance.” —Erma Bombeck

What happens when you clean your home from top to bottom in the spring – wash windows, floors, woodwork?   Well, if you are like me, you feel re-energized and focused. The opposite is true if I just dust off the winter, and simply skim the surface instead of digging deep – I have the nagging sense of an unfinished job, and must work at putting it out of my mind. I know I did not do the whole job, I know the dirt is there, and I know it won’t go away.  

We all procrastinate. Procrastinating on your spring cleaning may simply result in failing the white glove test. On the other hand, waiting too long to deal with the money owed you for the goods or services you provided can be very unhealthy for your business.

I hear small business owners tell me all the time that they are too busy running their businesses to focus on their past due receivables. The “dirty little secret” is that delinquent receivables rarely collect themselves.

accounts_receivables`I once met with a business owner who had close to 350,000 in uncollected receivables. He had extended credit to all his customers and many had never paid him anything. He was a good man with a good heart who really believed that sooner or later, people would do the right thing and pay him. A few even did!

However, when I looked at the entirety of his receivables, I immediately realized that a great deal of what he was carrying around was out of statute – over six years old, and basically uncollectible. I remember the look on his face when I told him that he had essentially lost any opportunity to collect over a third of what he had on his books, simply because he had waited too long.

The business owner, now a customer, immediately resolved to refocus his efforts on keeping his receivables clean. He assigned a staff member to keep track of all receivables. He let all his customers know his payment terms, in writing. He began to offer discounts for prompt payment, and had a follow up procedure for all late payments.

We did manage to help this customer recover some old items. But more importantly we could help him see the importance and benefit of an ongoing focus on his receivables.

The bad news is that even the best spring cleaning will get dirty again soon. The good news is that with a consistent effort, your receivables can stay clean indefinitely!

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