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Collection Agency or Your Lyin’ Eyes?

Posted by Paul Miller on June 21, 2017  /   Posted in Uncategorized

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

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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.

 

 

 

Maine Collection Agency: Can They Collect Finance Charges?

Posted by Paul Miller on June 20, 2017  /   Posted in Uncategorized

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Using a Maine collection agency help small business owners with bad debt recovery, but they collect finance charges? It depends on you, for several reasons.

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

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

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

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

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

A. The total of:

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

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

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

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

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

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

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

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

Small Claims Court: Mistakes You Should Not Make

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

Maine_Small_Claims_CourtSmall Claims Court works well if you know the correct procedures, and you research your files before taking on the process. However, if you are not careful, you may wind up with a useless judgment. This week, I had the awful job of telling a prospective client that his $5,000 judgment might be uncollectible. Let us look at what happened.

Our client is a consumer who sued a business. The debt owed to him was documented and valid. So far so good, right? When his contact at the business did not pay, he hired an attorney to sue the business and the person he believed was the owner of the business. He paid his lawyer $ 1,000 upfront to take the case to court.

Six months later, his lawyer called him with the good and the bad news. The good news was that our client was awarded a judgment for $5,000. The bad news was that his attorney informed him that his services did not include collection of the judgment, and that he would have to collect the judgment on his own.

The news got worse. Our client’s contact is not, and never has been, a principal of business, and was likely not authorized to sign on behalf of the business. He has no assets in his name. The business name, as sued, is incorrect. The actual business, not named in the lawsuit, has no assets in its name.

So, what went wrong? First, our client did not do research to find information on the company and its principals. Perhaps he believed his attorney would do that, but the attorney relied on the information provided to him. Secondly, our client did not ask his attorney which services would be provided. Small Claims Court is great for getting a judgment, but collection is about actually getting paid. The Court does not collect the money for you, so anyone who accepts the case for you should be experienced in debt collection, not just filing lawsuits.

Lastly, our client took a case to his attorney that was better suited for a collection agency. A collection agency would have worked to get the debtors on a payment plan, and if they decided that legal action was necessary, would have researched the file and handed the attorney file that had the potential to get the client paid.

Small Claims Court is not for every file. An attorney is not always the best option for debt collection and not every attorney has experience needed to recover your money. Make sure you know the difference.

Contracts and Why You Should Not Extend Credit without Them

Posted by Paul Miller on June 12, 2017  /   Posted in Uncategorized

debt_collection_documentationContracts are the single most important part of a credit agreement. Every great customer relationship hinges on communication, and a best way to communicate with customers is to detail your terms and conditions in a customer contract.

In many states, Maine among them, oral contracts are legal. However, oral contracts leave are open to interpretation. In a payment dispute, I can guarantee that your customer’s recollection of your oral contract will be different than yours. Why take the risk? Get it in writing!

Your may feel that your business cannot support getting all customers to complete a long contract, and that may be true, but the point is, your contract does not have to be complex. One of my clients is a commercial cleaning service. They take new orders over the phone and were getting burned by people who thought the cleaning was “too expensive” after the job was finished. The owner of the company began using her iPad to send a quick confirming email to customers confirming basic details of the job: hourly rate, minimum hours and estimated number of hours. She asked customers to agree to the terms in a return email.

Just like my customer did, you have to make sure that your contract is bilateral. Make sure the other party agrees to it. Another of our clients put a large, expensive refuse container at a home. The homeowners were away when the container was delivered, and so never signed the contract. They have not paid for it, and my client cannot enforce the terms of her contract that allow her to charge monthly late fees, interest and cost of collection. It is not enough just to tell customers your terms. They must agree to them in writing. Business owners often tell me that they put their payment terms on the invoice. That is too late. Certainly your invoice can repeat your payment terms, but they must be agreed to by both parties in advance.

To protect yourself, make sure you include the nature and extent of the service/product, price, payment terms and consequences. If you can convince your business customers to sign a personal guarantee, all the better.

Of course, if you can afford a contract drawn up by your attorney, you will use it again and again and it will become your best friend. However, do not let anything stop you from obtaining a basic written agreement.

 

Maine Small Claims Court: When it Works and When it Does Not

Posted by Paul Miller on June 08, 2017  /   Posted in Uncategorized

Maine_Small_Claims_Court

Maine Small Claims Court can be a terrific way to recover money owed to you. It is, however, not appropriate for every delinquent customer. If you want to use the Court successfully, take these things into consideration:

Assets: Does the party you are suing have assets to pay the judgment? The Court does not collect money for you. If your claim is successful, the Court awards a judgment in your favor, which is legal confirmation that the money is owed to you. It also gives you the right to lien assets such as a home, bank account or wages. Certain assets, such as pension and disability payments cannot be attached. Do your homework before filing suit.

Party: Are you suing the right party? If you customer is a business, are you suing the business or the principals? Without a personal guarantee, you may not prevail suing a business owner. Once again, are there assets in the name of the business? Check the Maine Secretary of State business listings to confirm exact name of business and if, in fact, it is an active business at all.

Time: You will be required to go to Court at least one time. You could spend 30 minutes or an entire day, depending on how many cases are on the docket that day. If your Defendant does not pay within 30 days, you will have to bring them back to Court for a disclosure hearing, possibly another day in Court. How many days can you spare from the office? Is your time best spent in Court or outsourcing and focusing on your business?

Money: It costs $55 to file a Maine Small Claims Court case. It may very well be that just filing the case will convince the defendant that you mean business and get them to pay. However, there are other costs you need to consider. You must “serve” your defendant using a sheriff. If the defendant lives in a remote area, or if they evade service and it takes multiple trips to their home, you could wind up with some hefty service costs. And, you may need the sheriff once or even twice more. The longer the case goes on, the fees will rack up. Fees can be added to the judgment and recovered, but be prepared for temporary out of pocket expenses.

Reason: Are you filing the case out of anger, simply to irk the defendant? Are you using Maine Small Claims Court to avoid attorney or collection agency fees? Your only reason should be that you have a good case and a good potential for being able to win a judgment and recover your money.

So, use the Maine Small Claims Court system when it makes sense. Be smart and consider it one of the ways to recover delinquent customer accounts.

Maine Small Claims Court: What You Need to Know

Posted by Paul Miller on June 07, 2017  /   Posted in Uncategorized

I have written extensively about small claims court in general, but since each state is different, I thought I would give some specific information regarding the Maine Small Claims process.

Maine_Small_Claims_CourtThe Small Claims Court was designed to give businesses a way to bring their grievances to court without having to hire an attorney. You are not precluded from having an attorney if you wish, but you are not required to have one either.

For Maine Small Claims Court, if you are even considering filing a small claims suit, this pamphlet is required reading. It sets out the process and associated fees.

Here are some things to remember:

1. The total amount of your claim cannot be more than $6,000 and be no more than 6 year old.

2.  The filing fee is currently 55.00

3.  It is critical that you “serve”, that is let the other party know they are being sued. If you do not have a large volume of cases, you can ask the clerk to arrange service for you, but you will have to pay for it. The cost of service will depend on where your defendant lives, how many times the sheriff attempts service, and other factors.

4.  Shortly after filing your claim you will receive notice of a hearing before the Court. You are required to attend the hearing. While you are not expected to have a great deal of legal knowledge, you will be expected to make your case. You must bring documentation to back up any claims.

5. If you, the plaintiff, does not attend, the case will be dismissed, and you will have to start the process all over again.

6. If the defendant does not show, you will likely be awarded a judgment by default.

7. If you cannot attend the hearing, contact the court and ask that the hearing be continued to another date.

7. If both parties show, you will both be asked to talk beforehand, with a mediator if you choose, to see if you can come to an agreement. If you do, you will come back and let the judge know. If you cannot, you both can make your case, and the judge will render a decision.

7. If you are awarded a judgment, he court does not collect the money. You must do that yourself or hire someone to do it for you.

8. The party losing the case (you or defendant) has 30 days to appeal the judgment. It also costs $300.00 to appeal.

9. If you are awarded a judgment and the defendant does not pay, you can bring them back to court for a “disclosure hearing”, which means you bring them to court, and they must, under oath, disclose assets such as where they work or where they work. Your judgment allows you then to attach those assets to be paid. You will have to once again pay for a sheriff to serve the other party with the notice of the hearing. If the defendant does not appear, you can ask the court to issue an order of civil arrest, which the sheriff can serve on them to bring them to court, and again, more sheriff’s fees.

10. If you do get paid on the judgment, contact the clerk so they may update the court record. 

It may have occurred to you while reading that there is considerable time and expense in filing a claim in Maine Small Claims Court. Therefore, you must make sure you are filing a case that makes sense.

Tomorrow we will take a close look on which types of cases you should and should not bring.

Stay tuned!

Delinquent Customers: What Makes Them Pay?

Posted by Paul Miller on June 06, 2017  /   Posted in Uncategorized

bad_debt_recoveryDelinquent customers can drain time and energy from your business if you spend time chasing them for payment. They take time that should be spent to managing and growing your business. The process of recovering money owed to you can be demoralizing and frustrating, but it must be done.    So how can you get the best results in the most efficient way? Which tricks and tools are going to make delinquent customers finally pay you?

Communication – You should never stop communicating with delinquent customers. Your contract and bills are the first ways you communicate with customers. With delinquent customers, the squeaky wheel will get the grease. Your first step is to get on the phone and see what is happening. You would be surprised how one phone call will get results with some customers. Use the phone call as a sort of customer satisfaction survey as well as a request for payment.

A collection letter should be sent to any customer delinquent more than thirty days. If you draft a powerful letter you will use it again and again. You do not need to be threatening, simply state your demand for payment.

If someone in your company has a relationship with the delinquent customer, make sure to involve them in the process, perhaps to make a second follow-up call and create a sense of escalating urgency.

Leverage: Do you have a product of service that the delinquent customer wants again? If you have leverage, use it. Sometimes your leverage is seasonal: fuel oil dealers get paid as soon as it gets cold. Pediatricians get paid when parents need their camp or school physicals. Trade contractors can use mechanic liens to secure payment, if they do so in accordance with state laws.

A perfect example of using leverage to get paid is in the first Ghostbusters movie. A hotel is overrun by ghosts and customers are scared. It is bad for business. The Ghostbusters are called and capture the ghost. They present a very large bill to the customer, a very haughty gentleman who tells them their bill is exorbitant, and refuses to pay. Without skipping a beat, the Ghostbusters start to release the ghost back into the hotel ballroom. Not surprisingly, the snooty hotel manager agrees to pay.

GBWhile you may not want to be as aggressive as the Ghostbusters, find a way, if you can to use leverage to get paid. Stop providing the product or service, if you can – that is leverage. Hopefully, your customer contract allows you to accrue interest. Finance charges and late fees are a great leverage, and can also be used as a negotiating tool. Offer to waive interest charges if the balance is paid in full. If your customer cannot pay the entire bill, set up a payment plan that includes waiving of interest at the end of the plan if payments are made on time.

Flexibility – In addition to waiving of finance charges and fees, be flexible with your delinquent customers. Offer payment terms and provide multiple ways for customers to pay you. Be creative. Offer a small discount as a last-ditch effort. A small discount will be less than you pay an attorney or collection agency if you outsource the debt collection.

So keep talking, keep thinking and keep improvising – and you will find many more delinquent customers will come around.

Creditors’ Rights: You Must Protect Them

Posted by Paul Miller on June 01, 2017  /   Posted in Uncategorized

creditors_rightsCreditors rights are a subject near and dear to my heart. I am passionate in my belief that business owners have a right to be paid.

Getting paid a right? Yes. Let me explain. Consider the Constitution of my state, Maine. The first Article in the Declaration of Rights (similar to the US Bill of Rights) is:

All people are born equally free and independent, and have certain natural, inherent and unalienable rights, among which are those of enjoying and defending life and liberty, acquiring, possessing and protecting property, and of pursuing and obtaining safety and happiness.

Your rights come from the fact that when you agree to provide a service for product or service for a fee, you are a party to an oral contract. Contracts are considered assets. Many jurisdictions, including Maine, consider oral contracts valid. However, just having an oral contract leaves your agreement open to interpretation.

When you commit your customer agreements to written contracts you are protecting your right to be paid. A contract does not have to be a long formal document. Draft a simple document confirming your price, terms for payments, and the consequences of non-payment. Make sure you have your customer sign, or indicate their agreement. If you do not have the opportunity to have them physically sign the contract, try emailing it and ask your customer for a return email with their agreement. Voila – a simple contract!

Also, in the world of customer credit, your accounts receivables are an asset. They are, in effect, a promise to pay you for your product or service. However, your accounts receivables are not liquid and are in effect, worthless if they cannot be converted to cash.

If you do not regularly monitor your accounts receivables, or if you delay in sending them to your collection agency, you cannot covert them to cash or real property, and you will lose out.

So, as much as I believe in the right of creditors to be paid, I  contend it is the responsibility of business owners to protect this important right.

Medical Debt Collection: Recover Missed Appointment Fees

Posted by Paul Miller on May 31, 2017  /   Posted in Uncategorized

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Medical debt collection can assist health care providers of all sorts of ways, but can a collection agency successfully recover missed appointment fees?

I can imagine how frustrating it must be for you to sit waiting for patients who do not show up. It may be appropriate to forward these patients to collections, depending on the circumstances. Here are some things to consider:

§  Did you communicate your policy regarding missed appointments to your patients? A well-crafted office policy that reminds patients that you will bill them for missed appointments is a must. It should part of a larger patient financial agreement and should be signed by the patient. Simply posting it in your office is not enough.

§  Did you receive any notice from the patient as to why they did not show up for the appointment? Emergencies happen, and it is probably not a good idea to penalize someone for an emergency.

§  Is the amount of your missed appointment fee reasonable? It should reflect any out of pocket costs (example, a specialist needed for a test, etc.) and the length of time you set aside for the visit).

§  Is the length of time required for cancellation reasonable? Asking for a week’s notice may be a bit extreme. Only you can determine what kind of notice you require. Usually, 24-48 hours is appropriate.

§  Do you have a good service to record phone call cancellations? In experience, most people will dispute the charge and say that they canceled the appointment. Do you have a way to prove that they did not cancel on time?

§  Is the patient a repeat offender? Many practices opt to forgive one missed appointment but will charge for any subsequent appointments missed. Your written agreement should clearly outline how it works. 

§  Is it worth your time and effort?

If you believe you can document and support a missed appointment charge, and you know that patients are aware of and have agreed to your policy, then it can be entirely appropriate to treat those files as collection files. We recommend you try to collect the balances on your own before sending them to a collection agency, and if you send them a disputed patient balance, make sure the collection agency knows that going in.

Collection Agency Fees: What Will They Cost Your Business?

Posted by Paul Miller on May 29, 2017  /   Posted in Uncategorized

Bad_Checks_Maine

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

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

The cost of a collection agency can vary. Collection agencies get paid in one of two ways: flat fee per file or contingency. Flat fee charges can work for some businesses, but usually only cover a certain time period, or cover limited services. For example, you pay 29.00 per file and the collection agency sends one letter and makes a few phone calls. Per file fees debt collection fees are based on the collection agency’s estimation that some files will pay quickly. 

There are two main issues with the flat fee approach to debt collection costs. First, is often only available to companies that send large numbers of files to collections monthly, such as a large medical group. Secondly, services that are part and parcel of the collection process are probably going to cost extra. Over half of accounts sent to collection need some type of research to find new phone numbers or addresses, and research will not be provided on a low fee file. So, while these rates are attractive at first glance, they may not be the best option for you, especially if you have already done some in-house collection. 

The flat fee approach is fine for “low hanging fruit”, but you can usually collect those on your own. What happens to the tougher files? They are either parked on a credit report, where they will languish, or you will be asked for an additional fee for further collection activity.

The most common way collection agencies are paid is by contingency, which means that the collection agency gets paid no money upfront, and is compensated with a percentage of sums collected. The debt collect fees normally vary based on its “age” (how long outstanding). Contingency rates vary from 25% (or less) on debts that are under 90 days old to 50% (or more) on debts that are over a year old. Contingency rates should include the full range of collection services you need: research, credit reporting, legal fees. 

One of the most effective ways to minimize your cost of collection agency is to use a solid customer contract that passes on some of the cost of collection. Many states allow some or all of the costs of collection to be passed on to the customer if (and only if) the customer agrees to it beforehand. Check with your attorney to find out how your contract can help you with collection costs. 

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