Small Business Debt Collection Resolutions for 2021

Posted by Marilyn Miller on December 31, 2020  /   Posted in Uncategorized
All those in favor of ending 2020, raise your hand.















Certainly 2020 was a difficult year in many ways, but the good news is that if you are reading this, you are still standing. This past year has also presented opportunities to rethink our businesses, and find a new (and maybe better?) way to do things. 

President John F. Kennedy famously said, “The Chinese use two brush strokes to write the word ‘crisis‘. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity”.

Many of us took advantage of the opportunity created by the COVID-19 pandemic to change the way we live and work. So which changes will you bring forward into 2021 and beyond?

Personally, I will continue reaching out to older family members, many of whom live alone. I will continue to improve my ability to work remotely wherever I am. 

As respects debt collection, we did not have the use of Small Claims Court for nearly the entire year. So, we got better at putting together settlements and payment plans. In the end, settling for a little less money may always be preferable than a drawn out legal battle.

Take a look at your credit practices – the who, what, when and how of extending credit to customers and patients. What care your resolutions to improve in the new year?

Small business credit practices are often an afterthought. I have lost track of the number of times I have heard a client say, “I know I should have….but I didn’t’, and now they have not paid me.”

You are already doing a number of things right. Look at what worked for you in 2020, and keep doing those things. At the same time, resolve to take some simple steps to strengthen your small business credit practices.

Gather and Update Customer Information

Every contact with a customer is an opportunity to collect and update information that may be helpful to you. These days, people move often. Make sure to update address, phone number and email every time you speak with a customer. Do you have current insurance information? A valid credit card? You will not know until you ask.

Remember the 3D’s: Deposits, Dunning and Documentation

Whenever you can, collect a deposit when you extend credit to a customer. Customer with “skin in the game” are more likely to respect the credit arrangement. At a minimum require a current credit card on file. Many people pay their household bills with automatic withdrawals. Payments to you should be no different. Dunning, or billing your customers on a regular basis, seems like a simple task, and is often poorly executed. Bills must be sent promptly and regularly. They must be legible and easy to understand. They must provide information on how to pay, and who to call with billing questions. This is an easy one! Proper documentation of all credit transactions, including documentation of the terms of any payment plans is a must. Memories fail us, and details not documented may be lost forever.

A customer contract is your best friend. Use a written contract for every credit customer.

Oral contracts are legal in most states, including Maine. However, once again, if you do not put terms in writing, you leave yourself open to interpretation. In a payment dispute, your customer may remember things differently than you do. Your contract must include how much to pay, when to pay,  and the consequences of non-payment. No time for a detailed contract? Send basic details in an email to your customer, and ask them to email back their confirmation. Voila, a simple contract. Remember, you can take the time beforehand to document your terms or you can argue with your customers afterward.

Stay on top of your accounts receivable, have a plan to follow up on accounts and stick with the plan.

A consistent process of review and action will make all the difference with your accounts receivable. It will boost your cash flow and reduce the number of files you will need to send for outside collections. Involve key staff. Make it fun, or at least take the dread out of the process by coaching your staff on how to talk to customers about a debt. Use a well-written debt collection letter to follow up. Managing your small business credit practices is not rocket science. It takes commitment and consistent effort. For 2021, resolve to keep doing all the great things that made you successful last year, plus a little more. United Obligations wishes you a happy, healthy and prosperous New Year!

Collection Agencies and How They Work: Is it Magic?

Posted by Marilyn Miller on December 28, 2020  /   Posted in Uncategorized

If you are like many small business owners, you have taken time from your business to work on bad debt collection. In some cases, you may have chased a customer for months without success. When you decide that customer over to a third party collection agency. When the customer pays the collection agency, you are probably upset that it took collection activity to get paid, and wonder what the collection agency did to make it happen, am I right?

Here is a trade secret. Bad debt collection is not magic. It is the result of consistent and focused effort. There are many things that you can do to reduce the risk of customer bad debt  as well as ways to protect your right to payment.  If you do send a file to a collection agency, make certain you give them all the information they will need to recover for you successfully.

To reduce customer bad debt and protect your right to be paid, it is important to get as much information as you can on customers and keep it updated.  A customer contract, even a basic one, is always helpful. Your bills must be timely and accurate. Create a standard operating procedure to follow up on slow or non-paying customers. Know when you need to hire a collection agency.

Your collection agency are not magicians. There are certain files that should never be referred for collection. For example, any file that is beyond the statute of limitations or the result of an error in billing, or when the debt is the subject of a serious dispute that should be referred to an attorney for litigation. On the other hand, a collection agency has special tools to help locate people and their assets. Collection agencies use a variety of methods to recover for you, and with your support, can improve your cash flow like, well, magic.

Reduce Cost of Debt Collection

Posted by Marilyn Miller on December 04, 2020  /   Posted in Uncategorized

You can significantly reduce debt collection costs with a customer contract before you grant customers credit.  However, too many small business owners do not have a written contract in any form. If you wait until after the transaction,  it is, as my mom would say, “Closing the barn door after the cows have gotten out”.  Good solution, but too late to be of any use.

How do customer contracts help debt collection?

Customer contracts are your most important tool.  They often make the difference in your ability to collect a debt, or in your collection agency’s ability to do so. Customer contracts are often the very thing that convinces a customer to pay.

Can I use an oral contract?

Oral contracts are legal in Maine and in many states. However, an oral contract leaves the terms and conditions open to interpretation. Take it from me – when people owe money, they may “remember” the terms differently than you do. Get it in writing!

How about finance charges?

You must have a signed contract to charge interest on past due balances. Business owners often tell me their finance charges are on the invoice. Your customer will not see the invoice until after the work is done.  That is too late!   You must prove that the customer agreed in advance to pay finance charges.

What about the costs of collection – can I pass them along?

You need a contract to recover costs of collection, that is attorney fees, collection agency fees and such. Each state has different laws regarding your ability to recover it, but in all cases, you must have a signed agreement that predates your transaction.

If you wait until after the transaction, and your bill goes unpaid, it is, as my mom used to say, “Closing the barn door after the cows have gotten out”.  Good solution, but too late to be of any use.

What is a personal guarantee?

A personal guarantee is a contractual promise by the owners that they will personally pay the debt if the company is unable to pay. Yesterday, I received a request to collect a large bill that is owed by a company that is out of business.  They had a contract, but it is of no use because the company and its assets are gone. In this case, a personal guarantee would have been helpful.

When I was thinking about writing this blog, I thought that a good analogy for the solution that comes too late, or trying to enforce contractual terms without a contract would be to compare it to putting in a sprinkler system after a fire.  However, while yes, you would not be able to prevent a fire retroactively, you could learn the lesson and install sprinklers to prevent future fires.

So it is with your customer contracts. Use them to reduce debt collection costs. If you do not have a contract, get one today. You do not need a lengthy document. Even a quick email works. Update customer contracts annually.  Use a personal guarantee with business customers.

In other words, close the barn door before the cows get out, not after!

Small Claims Courts are Closed: Here is How to Get Paid Anyway

Posted by Marilyn Miller on December 01, 2020  /   Posted in Uncategorized

Courts in Maine and in many states continue to be closed due to Covid-19.  When they reopen, there will be a tremendous backlog.


If you have been using Small Claims Court to sue customers who owe you money, you will have to wait months (or years!) to get a hearing. And remember, the Court simply awards a judgment that you have to collect yourself, which will mean even more delay.

The good news is that there are alternatives to Small Claims Court.

Settlement: If your customer admits to owing you but does not have the funds the entire balance, consider settling for a smaller amount. We recommend lump sum settlements whenever possible to avoid a drawn out string of payments.  A small discount can save time and infuse cash into your business.

Payment Plans: If cash flow is an issue for your customer, they will not be able to pay in a lump sum and a well structured and documented payment plan can be a good option. Require a deposit to begin the plan. Make sure the plan is in writing and signed by the customer.

Promissory Note: Perhaps your customer is going through a rough patch but is certain to have funds to pay you in the future. A promissory note is a written promise to pay you on a certain date. The note must be specific in terms of the amount of payment, method, date, finance charges and so forth.

Set up an in-house collection agency: You will be amazed how much money you will be able to bring in if you set up a system and use it consistently. Draft a series of collection letters of increasing urgency. Provide your staff with scripts for collection calls. Meet weekly to review progress.

Hire a collection agency. Find a collection agency that has experience working in your area and with businesses like yours.  Make sure the agency is compliant with state licensing requirements (if they exist) and check references. Provide a collection agency all information regarding the debt and the delinquent customer. Keep in touch with the agency during the process.

Not every debt or every customer is right for a Small Claims Action. Even after the Courts reopen, you may find these are better alternatives much of the time. The best way to get the Small Claims Court right is to realize that is only one tool in the debt collection toolbox. Have a strategy that includes a solid in-house collection effort, a relationship with a debt collection agency and a working knowledge of the  Small Claims Courts, and success is guaranteed.

Customer Credit: You Have More Risk than You Think

Posted by Marilyn Miller on November 19, 2020  /   Posted in Uncategorized

Customer credit terms can allow you to be competitive in the marketplace. Customer credit can increase your sales and cash flow. However, terms must be closely monitored to make certain that accounts receivable stay current.

Many small business owners choose not to offer credit terms and either get paid in advance or at the time of service. If you can do this, and stay competitive in your field, great! However, you may still have customer credit risk.

risk business concept with red pawn on white

You must have a plan to recover bad checks.

A client of mine in Maine has a retail outlet as one of their businesses. Every once in a while, a customer passes a bad check to them. They know the Maine law and follow it to follow up with customers who pass them bad checks. They know what fees they can assess and what actions they can and must take to comply with the law.

Until a customer’s checks clears the bank you have credit risk. Know the law in your state and your rights as respects recovery.

Credit card chargebacks and “friendly fraud” hurt businesses.

If you accept credit cards, you have a credit risk, especially if you do not have a signature (i.e. phone orders). “Friendly fraud” also known as chargeback fraud happens when a customer disputes a charge in an attempt to get an item for free. (Doesn’t seem real friendly to me, how about you?) They may say they never received the item, or that someone else ordered it with their card. A 2016 report noted a 28% increase in fraudulent disputes.

I had a client who shipped jewelry to a customer based on an online order. The customer signed for receipt of delivery, and then promptly disputed the charge, stating that someone else signed her name and took the ring. My clients believed she received it, but despite their best attempts to counter her dispute, lost and were out nearly $ 5,000.

Another client sold a piece of jewelry to a woman in person at a trade show. A month later, the credit card charge was disputed. As it turns out, the woman was in the middle of nasty divorce and used her husband’s card to pay for the ring. This time, my client did successfully recover the money, but it took months and they had to hire me to collect the money for them.

Even for valid disputes, the time and expense answering credit card chargebacks is costly. Remember that once a customer disputes a charge, your merchant service provider will likely take the money in question out of your account immediately. You will not get the money back unless and until you win the dispute.

Have a plan in place to respond to customer credit card disputes. Respond promptly, as you will be given a limited time to do so. Keep good records, and get a signature whenever you can.

Bankruptcy does not always mean you will not get paid.

Nothing is worse than receiving a bankruptcy notice for a customer that owes a good deal of money. You may or may not be able to be paid at some point, depending on a number of factors. Know the law regarding the different kinds of bankruptcy. The bankruptcy laws offer protection to people who cannot pay what they owe, but the protection comes with some responsibilities and conditions. As a creditor, you have some rights too, and it is important to know them.

Of course, using a strong customer contract with payment terms spelled out is always a good protection. Will it prevent all problems? Of course not. It will certainly help minimize your customer credit risk.

Accounts Receivable Management and a Good Harvest

Posted by Marilyn Miller on November 17, 2020  /   Posted in Uncategorized

It’s harvest time! A successful harvest does not just happen. It is the result of a great deal of hard work. The soil must be tilled, seeds planted and nurtured. The gardener must weed often, lest the weeds overtake the crop. Drought, severe storms and many other perils could put the harvest at risk.  If the plants in the garden were poorly planted, they will not have a good root structure and might not survive wind and rain. 

Successful accounts receivable management also does not happen on its own. I am reminded of Peter Seller’s brilliant portrayal of Chauncey Gardener in the 1970 film, Being There.

A simple statement from a gardener about how seasons impact growth of the garden is interpreted as expert economic theory. In fact, it is. In order to have growth in the garden it is important that the roots are secure. Spring and summer are growth periods, while winter brings a time to prune, to wait and to plan. Fall, of course is the harvest.

In order to preserve cash flow, a small business must weather the tougher “seasons” by maintaining a strong accounts receivable management program. This is particularly true during this current pandemic. Strong “roots” – your commitment to a strong credit and collections program – will sustain you when the “storms” of economic downturn arrive. Just like the gardener nurtures good growth, a small business owner should grant, or possibly expand credit to customers who deserve it, and “weed out” customers who do not. 

Accounts receivable management means constant attention to your aging report. Identify delinquent customers and follow up with them by phone or using a well drafted collection letter.  Customers who ignore you should be referred to your collection agency without delay. 

Doing the right things in the garden – planting the right seeds and tending the garden with care – will bring a good harvest.  You can also reap the benefit of your accounts receivable management efforts with improved profitability. 



Small Business Credit and Collections: Top 5 Missteps

Posted by Marilyn Miller on November 16, 2020  /   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.

Accounts Receivable: Breaking Up is Hard to Do

Posted by Marilyn Miller on November 11, 2020  /   Posted in Uncategorized

Accounts receivable are an asset, but in order to be of value, they have to be converted to cash. Although some companies may enter into factoring arrangements and pledge receivables, most cannot. So basically you cannot use receivables to pay your employees or buy new equipment.

What is accounts receivable?

Accounts receivable (A/R) are defined as balances due services or product that have been provided or delivered. The definition also states that that these balances have not yet been paid. They are simply a promise to be paid. Once you are paid, and only when you are paid, do you have income. Too many small business owners confuse accounts receivables with income.

Small business owners all too often delay hiring a collection agency because they have fallen in love with their receivables, and believe those nice big numbers, even when the accounts receivable are not yet collected and yes, even if they are a year delinquent.

My advice is always the same: Break up with your receivables, even if breakin’ up is hard to do.

You must have a plan for managing your accounts receivables.

If you do not manage your A/R, they will manage you. Your cash flow will suffer. You will find there is not enough money to pay your creditors, your employees, or yourself. A small business plan for accounts receivable management should include a plan and timetable to reach out to delinquent customers. The timetable must include a deadline for the process of forwarding delinquent customers for third-party collection and/or litigation. Your approach must be consistent and you must commit to it.

The math is simple.

If you are holding off hiring a collection agency because you are put off by the collection agency rate, you are only hurting yourself. Remember, you have not been paid. Once an account is delinquent you have in effect suffered a loss and you have nothing.

0 Times any rate is always 0

Switch your thinking to recovering as much as you can. If you plan for it using a customer contract, you may be able to recover some of your costs of collection.

Some breakups are harder than others. But in the case of your accounts receivable, you have nothing to lose, and everything to gain.

Collection Agencies: What We Do (vs What You Think We Do)

Posted by Marilyn Miller on November 10, 2020  /   Posted in Uncategorized

Collection agency. When I tell people I run one, I usually hear, “Hmm…interesting”, as in “How do I get away from this person” or “How do I feign interest when I cannot believe anyone would do that for a living.  That, in my opinion, is championing the right of my small business customers to be paid for the work they do.

I do not believe that the negative reactions I may receive have much to do with people owing money as much as people reacting to the many negative stereotypes (some of them, sadly true) of what a collection agency does. Other people simply wish to avoid conflict at any cost, and cannot imagine that I spend my day trying to get people to pay what they do not want to pay.  I either hear, “You are too nice to be a debt collector” or “Oh, a leg breaker, eh?”

Well first and foremost, there is no leg breaking. Although as I have stated, there are some bad players in the collection industry, state licensing agencies and the laws against abusive collection agency tactics have improved the industry. Trade organizations such as ACA International provide education and guidance on professional standards.

Many people believe all a collection agency does is make a few calls and report debts to the credit bureaus. Calls and reporting are only part of the process.

So what do I do all day?

I research collection files to find new information. A collection agency has specialized tools to find debtors and their assets.

I review bills with consumers to communicate and verify how the debt was created. For example, I spend a good deal of time explaining medical and dental bills in terms of insurance policy out of pocket expenses, such as coinsurance and deductibles.

I negotiate and document payment plans.  I keep those plans on track.

I assist my small business customers make better customer credit decisions, and explain how documentation is key to avoiding problems down the road.

Are some collections difficult? Of course.

The key to successful debt collection is persistence and professionalism. No one likes to owe money. A collection agency advocates for their clients and their right to be paid, while respecting the rights of the people who owe the debt. It is a fine balance.

Small Business Debt Collection: It is All About Communication

Posted by Marilyn Miller on November 09, 2020  /   Posted in Uncategorized

Small business debt collection cannot be accomplished without communication. Whether you are collecting the debt in-house or hire a collection agency, what you say and when you say it makes all the difference.


Now, communication should start from the very beginning of a relationship with a contract or at very least some documentation of the terms of the delivery of your product or service. Today though, we will focus on the role of communication in the recovery of past due balances.

The novel Code Name: William Tell by Colonel Don Wilson describes a fictional president who comes to a peaceful solution to a national crisis by letting his mind expand to consider all possibilities. His character muses, “there is no last word in diplomacy”.

Diplomacy – in the form of clear communication- is the essence of collection.  Not threatening, but communication, talking, diplomacy.  Your problem is that the individual or business is not paying, and probably not talking either.  The initial step is not to threaten, but to open a hailing frequency, find out what the problem is.

With commercial small business debt collection you would be surprised how many times the reason for nonpayment is simply  that the invoices were not in the right department.  Are you in contact with the person who approves and pays bills? If not, get to that person, and getting paid is much easier.


With consumer debt collection, lack of communication is also often a factor in why bills do not get paid. Are your invoices clear and do they detail all your payments and charges. With medical and dental debt collection, it is often a matter of helping patients understand how their insurance policy works.

The most important aspect of credit management is communicating with the people who owe you money.  An initial phone call should follow an invoice after a completed job.  The communication link between you and the account starts on a positive note from the outset.  You can update contact information. The call will not only help with payment but also address any issues that could be obstacles to payment. For example, a client of ours, a well water treatment contractor, recently phoned a customer about a past due bill for a water sampling. The customer explained that she had not received the results of the test (an oversight by company) and when provided with the results, instantly provided payment.

Continue conversations with your customers, making sure your invoices have the terms clearly printed on them, and advise your customers how and when you expect to get paid.  Remember, a customer still wants something from you.  They want to use the credit you extend because it is good for their finances.  You as the creditor then assume the responsibility of its management.  Credit will not manage itself.

People respond to people.   There is a reason they aren’t paying.  The only way to find out is to pick up the phone and ask.

There are times when you cannot communicate with someone, because they stop responding to you, and you will need to outsource to your collection agency. But the more you make your small business debt collection about communication, the less likely it will be that you have to pay your collection agency to recover for you.

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