Small Business Credit and Collections: Top 5 Missteps

Posted by Marilyn Miller on June 10, 2019  /   Posted in Uncategorized

Small business credit and collections is the process of juggling giving customers credit and making sure that customers stick to the credit terms by paying on time. It is no accident that the words “credit” and “collections” are often used together, and seen as similar functions. How well you put together a customer credit arrangement will drive how well it works. In a perfect world, every customer pays on time. In the real world, you will sometimes have to follow up and collect the money that is due for you.

Unfortunately, busy small business owners do not pay enough attention to credit and collections and do not manage the process until it is too late.

In my experience here are the top 5 real-life small business credit and collections missteps:
Number One: Insufficient information on credit customers.

Imagine borrowing money from a bank and having to only give your name and cell phone number. A bank gathers information on you, and makes an informed decision as to your creditworthiness. While you may not be able or willing to make the type of credit investigation and determination a bank would make, you can at least gather basic information on your customer using a credit application.

A customer once hired me to collect a $ 15,000 debt. They had been asked to do a very large commercial job in another state. The job was the biggest they had ever done, and they were very excited. So excited in fact, that they started work on the project with only the first name and cell phone of the man requesting the work. Needless to say, they did not get paid. We were able to research and find more contact information and obtain payment, but it took time and cost our customer money.

Number Two: Poor documentation.

If you are going to give customers credit, you must clearly outline your credit terms in writing, and have customer sign their agreement. A customer credit contract will be your best friend.

I have heard small “mom and pop” customers tell me that they not want a formal written agreement. They feel that asking a new customer to sign an agreement that outlines payment terms and also lists the consequences of non-payment is a negative way to begin a relationship. The prefer “handshake agreements” based on trust.

In truth, clearly communicating credit terms in writing in advance of a transaction is exactly the way to begin a business relationship. Start off on the right foot, and you can save problems down the road.

Need I tell you how many collections I have made based on handshake agreements? Often, contract terms are conveyed and agreed to verbally. While oral contracts are valid in most states, an oral contract subjects you to the memory of another. Trust me, in a dispute, an angry customer will remember it differently that you do.

Number Three: No system for accounts receivable management

Your accounts receivables will not manage themselves. If you do not have an aging report,  you must put one together immediately and live by it. An aging report lists customer invoices by their due date, and will tell you at a glance how long much is due you, and how long the customer has owed it to you.

Your next step is to design and program to follow up with customers at each landmark date, usually 30, 60, 90 and over 90 days past due. Assign responsibility for each contact, whether it be a phone call or collection letter.

Once you have your plan in place, stick to it! Again, manage your accounts receivable or they will manage you.

Number Four: Using Small Claims Court incorrectly

Small Claims Court exists to allow business owners the opportunity to take their cases directly to court. An attorney can be used, but is not required. Small claims court handle cases where the amount of the claim is under a certain dollar amount, which varies by state. In Maine, the limit is $ 6,000. In New Hampshire, it is $10,000.

In many instances, Small Claims Court is a great option for collection. The fees are generally low, and often people “wake up” and pay when served with a small claims suit. If you do proceed to trial, and if you do win, you are awarded a judgment. The Court does not collect the money for you. You have to collect it on your own and that can take more time and cost more money.

Not all debts make good court cases. Does the person or company have assets to attach? Are you certain you are suing the right entity? Does the dollar amount of the claim make the cost and effort worthwhile?

Last week, I received a phone call from a prospect who had been owed $ 2,300. Their attorney took the case to small claims court and charged them $ 1,500. The Court awarded a judgment for the $ 2,300 plus costs (around $150). The attorney advised that they were not able to collect the debt, and suggested hiring a collection agency. There is no underlying contract for attorney fees or costs of collection and the Court did not award attorney fees, so I had to tell this poor business owner that I could not collect the money he spent on his attorney, who obtained the judgment, but who has not interest in doing the hard work of collecting the debt.

Number Five: Waiting to long to bring in experts.

While you should attempt to collect accounts receivable on your own, there is a limit to what you can do. If you wait too long, you take the risk that your customer will incur more debt, move or that something else will happen to make the debt more difficult or even impossible to collect.

Set the limit of how long you are willing to wait for your money, and stand by it. Recently a customer submitted a $ 100.00 debt to me for collection. They advised that they had sent monthly notices to the customer for over a year.  If you do not receive any response within 90 days, get expert help. The longer you wait, the higher fee a collection agency will charge.

Delay also has some less obvious but very real impact on your business, perhaps including a higher cost of collection.

The good news is that these small business credit and collections blunders are all preventable. Planning, strategy and a persistence go a long way, and will benefit your business in the long run.




Debt Collection Costs: How to Manage Them

Posted by Marilyn Miller on June 06, 2019  /   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?

Collection Agency or Letter Service: Which Do You Want?

Posted by Marilyn Miller on May 27, 2019  /   Posted in Uncategorized

Debt collection involves a number of activities. Some debts are simple to collect, while others are more difficult.

More often than not, debt collection involves more than simply sending letters.

Yet, yesterday I received an email from a collection agency in another state promoting a very low fee to send four letters. To get the lowest rate, you have to submit a larger number of files. You pay the per file fee upfront. No phone calls are made for the fee, and all funds are sent directly to you. Sound great, no?

Let’s do the math

A small medical office sends 100 files to collection. The fee is $ 8 per file, so $ 800 is paid up front. Remember, you pay the fee whether or not the letters work, but if it does work, your only expense is the initial fee.

Twenty debtors pay from the letter, and you recover $1,000, slightly more than your original investment.  You ask the collection agency what will happen to the remaining  files, and they quote you the rate for real collection,  the standard contingent rate of  35-50%. The new contingent rate is in addition to the initial fee, which is, of course, non-refundable.

Let’s say the total value of the money owed to you in those 100 files is $ 10,000. You have recovered 10% of the money owed to you. Can your business afford to lose that $ 9,000?

Remember that four letters are likely sent over consecutive months, which means that your contingent rate will likely be higher, as debt collection rates increase as debts age. The debts get staler, people move and incur more debt. Trust me, the longer a debt is out there, the more likely money owed to you will be used to pay other bills.

Agencies that use this approach will only use it on current accounts, that is, files that are around 90 days old. It also assumes a volume placement Most small businesses will not have hundreds of collection files.

You should be sending collection letters yourself. Your collection agency should be contacting debtors by mail and phone, and researching for new information.

Effective debt collection is about so much more than letter writing. The choice is yours.

Customer Contracts: Worst Reasons for Not Having Them

Posted by Marilyn Miller on May 24, 2019  /   Posted in Uncategorized

Customer contracts are essential to debt collection. Contracts can make a difference between collection and walking away with nothing. In a dispute, a signed contract can prove your case. Contracts can reduce the cost of collection if your customer agreed to them (in writing) in advance. Taking time at the start of a relationship or transaction to set details in writing will avoid problems down the road.

I have been writing and speaking to my clients for years on the importance of customer contracts and debt collection. Yet, every month I receive more large debts that are not documented, and I have to give my client the bad news that I cannot add collection costs, or that a certain dispute may not fare up in court.

What reasons could there be for NOT having a customer contract? Here are some of the worst I have heard.
“We have an understanding and do not need anything formal”

The days of the handshake deal are gone. Movie mogul Sam Goldwyn once praised the trustworthiness of a colleague claiming that his, “verbal contract was worth more than the paper it is written on”. Well, oral contracts are admissible as evidence in most courts, oral contracts leave you open to interpretation. In a dispute, how many of your customers are going to remember the deal the same way you do? Get contracts in writing.

“It is too much work and not worth the effort to get a contract on each customer”

What if I told you that getting the basic terms of your payment arrangements would assist you in the event of a customer dispute? How about if a customer contract could reduce your cost of collection? Would those factors make it worth your while/

In addition, in most instances, you do not need a lengthy document. You simply need to put the basic payment expectations and the consequences for non-payment in writing. If a new customer calls and orders your service, obtain an email address and send customer an email with your terms. Ask customer to confirm back to you. Voila, a simple contract!

“We’re a mom and pop business, and we do not want to scare new customers away by discussing payment (or non-payment)”

Every business, especially a small business benefits from great communication. If you start off a relationship with all parties in agreement, you are much more likely to succeed.

Collection Agency: What Did You Really Do to Collect?

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

A collection agency is hired to collect a debt that is two years old. They make a phone call in an attempt to collect.  Upon receiving the call, the debtor (who had avoided contact for two years) immediately called his creditor and paid the bill (over $1,000) in full. The client called to report the payment, but also asked, “What did you actually do on this file?”

The answer is, “I did the exact right thing to get him to pay.”

Now my customer may believe that it was too quick and that I could not have possibly made it happen that quickly. I mean, it is possible that after two years, this person decided on their own to pick up the phone and pay their bill. What a coincidence that he did this the very same day we called!

It is impossible to say exactly what will turn a file.

Sometimes it is quick, and sometimes it goes on for years. Some people pay when they receive a collection letter, some wait for a phone call or second collection letter.  Some have to be taken through the legal process. Some are only collected through post-judgment collection by a lien or garnishment.

Many debts placed for collection will need to be researched. A collection agency has specialized tools to “skip trace” or research to find new information such as address or phone.

I like to look at my collection agency as a problem solver. Each file is different and needs a specific approach. If I receive a $10.00 file for collection, I can ill-afford to do more than send them one letter. If the debtor has no assets, the best option may be to get them on a payment plan they can afford. If the debtor has the means to pay and is just ignoring the debt, then litigation and post-judgment recovery make sense.

Yes, a collection sends letters. They make phone calls. Sometimes they report debts to the credit bureau. The main thing that leads to success is that a collection agency can focus on getting you paid. It is all they do – focus on getting you paid, which makes all the difference.

Debt Collection vs. Billing

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


Debt collection is a process. It is strategic and involves more than simply billing your customers.

Certainly, billing customers is important.

Too often, people tell us that they would have paid their debt but did not receive a bill. Prompt billing of your customers keeps your receivables cycle moving. Your bills should be easy to read, and provide clear instructions on how to pay. Make it easy for people to pay you.

The trouble comes in when you are billing customers and they are not paying you. At this point, you need to do more.

How many bills should you send to customers?

There is no set rule for how many bills you should send someone who is not paying you. It depends on the size of the bill, the value of the customer to you business, and a number of other factors. However, if you have sent two or more bills to a customer and received no response it is time to …

Pick up the phone and speak with your customers.

You will be surprised how many customers will appreciate a friendly reminder. Use the call as an opportunity to get feedback on customer satisfaction, or to sell new product or service. People are busy, and some people really do forget to pay a bill.

If your customer has multiple bills, your phone call could just move your bill to the top of the pile. If you do not ask, you may never know.

So what does a debt collector do that is different?

Imagine if you bill a customer and the bill is returned back to you marked, “Return to Sender – Unable to Forward”. You try to call the customer and the phone number is out of service.

While there is a good deal of information on the internet, a debt collector has specialized tools to find information about people. Research is known to debt collectors as “skip tracing” and it is what we do all day long.

Debt collectors also are experienced negotiators, and can handle tough customer issues. You can spend less time chasing delinquent payers and more time growing our business.



Collection Agency: We Are NOT Free

Posted by Marilyn Miller on May 13, 2019  /   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.

Maine Collection Agency: How to Find the Agency that Best Fits Your Business

Posted by Marilyn Miller on May 10, 2019  /   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.

Cost of Debt Collection versus Debt Collection Fee – What’s the Diff?

Posted by Marilyn Miller on May 08, 2019  /   Posted in Uncategorized
The cost of debt collection is not the same as a debt collection fee.

A collection fee is either a flat dollar amount your collection agency pays per file sent for collection, or a contingency rate charged on any sums recovered.

The cost of debt collection could include other items such as legal fees, court costs, cost of liens and the like.

What both of these items do have in common is that they can be partially or often fully recovered if you take steps beforehand with a written contractual agreement. The customer or patient must be advised, and must agree in writing that they are responsible for any costs associated with referring a balance they owe you for outside collection.

Don’t have time or do not wish to have customers sign a contract?  Well, then you cannot be angry if your agency tells you they cannot recover those costs. Your agency must follow the law, and the law requires a written agreement.

Another key difference if purely semantic. If you tell customers/patients they have to pay the collection agency fee, that is the kiss of death. No one wants to pay a collection agency! But if you state that they are responsible for your costs, all of them, if their file be placed for collection, then you have a much better argument, especially if your customer wants to do business with you again. Once again though, you must have it in writing!

There are other ways you can reduce the cost of debt collection.

The longer you hold off sending files to your collection agency, the higher rate they are going to charge you. Sure, try it on your own for 90 days or so, but if you have no results in 90 days, you need to bring in the experts.

Also, make sure the rate your collection agency is all inclusive. A low rate may look good, but what is the agency doing to recover your money? What is included in the rate, and what is extra? Be very careful that services such as research or “skip tracing” are not extra.

Do not forget that if you or your staff are spending too much time chasing delinquent customers instead of managing or growing your business, that is a soft cost of collection that you can easily remedy by hiring a collection agency.



Collection Agency or Your Lyin’ Eyes?

Posted by Marilyn Miller on May 06, 2019  /   Posted in Uncategorized

“Who ya gonna believe, me or your lyin’ eyes?” – Chico Marx in Duck Soup


Your collection agency is a valuable business partner. When you hire a collection agency, you do so not only to improve your cash flow by recovering bad debt, but also to save you time. A collection agency focuses on only collecting bad debt, and they have the tools and skills needed to do so.

So, let them do their job. While collecting bad debt is not magic, there is an art to it, and it is not for everyone. I believe that you should try to collect bad debt on your own, but if you have not been successful in 90 days, bring in the experts.

Once you place the file with your collection agency, trust their advice. In many cases, they have done research and they know the best way to get the job done. Since collection agencies work with a contingency fee basis, the are certainly going to advise a strategy that has the best chance of getting you paid.

Here are a few examples from our files:

Our client is owed $5,000. Their customer is a sole proprietor with a small business and assets.  We have researched and know that he is getting ready to retire. He also owes a great deal of money to other creditors. Our advice was to proceed immediately to Small Claims Court to obtain a judgment and secure their debt. It is frustrating to me that my client, who hired me to recover bad debt, is uncertain, and wants to take some time to think about it. I am not sure if the wait is because it means they will recover a little less money, or if they are worried about going to Court, but I hope they decide soon so that we can act. If we do not move now, we will wind up behind many other creditors, or the customer will sell his assets and move away, and there will not be anything to collect

For another client, I recommended Small Claims Court again, because the debt is almost 6 years old, and about to age beyond the statute of limitations. He has not responded to any requests for payment. He appears to have the means to pay the bill. I laid the facts out to my client and he told me to go ahead, because he trusted my experience and knowledge. He sees the collection of the file as our mutual goal.

There you have it – two very collectible files – one that will pay and another that may go by the wayside.

An aging receivable is not worth anything unless it can be converted to cash. Your collection agency knows how to do that. They would never tell you how to sell your product or deliver your service. So, when your lyin’ eyes tell you the bad debt on your books is valuable, don’t believe them.

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