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Collection Agency: Why Are You Waiting?

Posted by Marilyn Miller on December 10, 2018  /   Posted in Uncategorized

Delays stink. If you are stuck in traffic, or if your flight is delayed, it can wreak havoc with your schedule. A delayed flight could lead to a missed meeting which could result in a blown business opportunity. Small business owners who delay getting outside help collecting from delinquent customers are inviting some unfortunate consequences.

 

While small businesses should attempt to recover debt on their own, in-house efforts should be limited in time, and if they are unsuccessful, help from a third party is needed, usually a collection agency or an attorney. Businesses should set their own limits on how they want to wait as each business is different, but they must stick with their self imposed deadlines.

Too much delay is like gambling with your accounts receivables. Here are some issues that can develop:

 

  • The delinquent customer could move out of state. This would not make it impossible to collect but it will likely make it more difficult.
  • The delinquent customer could sell an asset that you might have been able to attach for payment later on.
  • A business customer could go out of business. Your customer could incur more debt, be less able to pay you, or even declare bankruptcy.
  • Other more proactive creditor could take legal action and place liens on their property, wages, etc. You would then be behind those, and there might not be enough equity to get you paid.
  • You could incur a higher contingency collection fee. Higher fees for older accounts (over a year, or in some cases, over 180 days) are common, because older debts are more difficult to collect.

Generally, if a customer has ignored you, or defaulted on promises to pay you for more than 90 days, you have a problem, and you need to get help. If you want to wait a but longer do so, but know the risks involved.

How long do you wait before sending a file to your collection agency?

Collection Agency or Letter Service: Which Do You Want?

Posted by Marilyn Miller on December 07, 2018  /   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.

 

Debt Collector: A Day in the Life

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

What does a debt collector do all day?

A debt collector does spend countless hours dialing for dollars. While telephone contact is a big part of what we do every day, it is only a small part of our plan to get our customers paid.

 

Morning Coffee and Promises

The first thing I do every morning is review the daily list of people who have promised to pay. A debt collector who sets debtor promises and diligently follows up on them. Some people do exactly what they say they will do. Others do it eventually, after several delays. Still others never intend to pay, and when they promise you, they are saying what they know will get you off them phone.

 

An experienced debt collector can differentiate between real promises and not-so-real ones. If someone does not pay on a given date, they can inquire as to the reason for non-payment, and perhaps work out a better plan for repayment.  For example, I recently spoke with a woman who owed my dentist client over $1,000. The first time we spoke, she told me she could pay in two weeks. I set the promise and followed up on the given day. I could not reach her for a week, despite multiple attempts. She did finally return the call, and told me that she could not make the payment. By carefully and compassionately questioning her, I learned that she did not understand that she did not have to pay the entire payment all at once. I was able to set her up on a payment plan of $ 100.00 a month, with payments scheduled to correspond with her biweekly paychecks. She stayed on schedule and paid the debt off as promised.

Customer Communication and Coaching

This week, I worked with an accountant to collect a past due balance. The debtor had paid half his bill, but had failed to make the second payment and had stopped responding. When we approached the debtor, who owed $2,500, he told me that he had been promised that he could pay only $700 to settle the balance. He had, in fact been told that, but when he failed to pay promptly the accountant believed his settlement offer could be withdrawn.

My accountant customer had an oral contract (for settlement at $ 700) with his customer. While oral contracts are valid, they are subject to the memory of each party in the event of a dispute. After fifteen years as a debt collector, I can assure you that in a dispute, each party will remember only the part of the deal that benefits them.

I advised my client to accept payment of $ 700.00. I advised the debtor (in writing) that we would accept the settled amount if and only if payment was made within a week. The debtor wired the money to the accountant the following day.

Afterwards, the accountant and I discussed how to document settlement offers in the future, that is, always put it in writing, lay out exactly how and when the debt is to be paid, and describe what will happen if payment is not made as promised.

My client took a little less money, but he got his money quickly and avoided a long, protracted dispute. He also learned how to protect himself in the future. I call that a good deal!

Skip, Skip, Skip to My Lou!

A big part of being a debt collector is research to find people and their assets. In our business it is called “skip tracing” and it is one of the favorite parts of my job. I consider skip tracing a critical part of my job, and I am really good at it.

Skip tracing combines using different sources (some public, others purchased) to find people or to make an assesment of their ability to pay. It is a critical part of our strategy and process.

If you are considering hiring a debt collector, you must ask about their skip tracing capabilities.

Legal Beagle

I am not an attorney but I work with attorneys nearly every day. Unfortunately there are times when the only way to collect a debt is to commence litigation and obtain a judgment. I have seen far too many judgments that are not collectible for various reasons. Therefore, I spend a good deal of time choosing and preparing only the best files to send to our attorney partners. We assist by managing the legal process, especially post judgment collection.

So yes, there is a bit of a grind in making what can seem like endless phone calls, or stuffing and mailing hundreds of collection letters. However, the variety of tasks and my commitment to the right of my clients to be paid for their work keeps me going.

How To Avoid Hiring a Collection Agency

Posted by Marilyn Miller on December 03, 2018  /   Posted in Uncategorized

Some small business owners avoid hiring a collection agency, ignoring that they have a problem with their accounts receivable. They simply put on blinders and focus on other things. They forego hiring a collection agency by claiming that is it too expensive, takes too much time, or not worth effort. While this is certainly an effective way to avoid hiring a collection agency, it is self-defeating. Delinquent accounts receivable can be ignored, but they do not collect themselves.

So how can small business owners address their delinquent customers, collect money owed to them and still avoid having to hire a collection agency?

 

Discontinue extending credit to customers.

If you do not extend any sort of credit by having all customers pay up front, then you will never have an issue with customers not paying. How feasible is this for your business? In many cases, it will make you less competitive. You would be avoiding one issue by creating another.

 

Require a customer contract for all credit customers

Lay out the terms of your credit agreement with customers before providing your product or service. Communicate your expectations for payment in advance. Explain how much, when and how the customer will pay, and explain what will happen if they do not pay as promised.

Your contract does not have to complex. Send a customer a quick email with details of payment and asked them to email back their consent, and you have a simple contract.

A customer contract can help settle disputes before they happen. A contract should be in writing. Oral contracts are legal but open the possibility of different recollections of the terms and conditions of the oral contract.

 

Make it easy for people to pay you.

 

People will pay you more regularly if you give them different payment options. You want your bill to be considered as important as any monthly bill. More and more people pay their bills online. If you give customers the option of paying your bill online, it can put your bill on equal footing with other obligations.

 

Design and implement a process for contacting delinquent customers and work it consistently.

 

Treat accounts receivable management with the same importance you give to sales, operations or customer service. Review accounts receivable regularly and contact customers as soon as they are late. Use a collection letter and personal phone calls. Be a friendly pest.

Can you avoid ever having to hire a collection agency? Maybe, maybe not. You can however greatly reduce the number of customers you refer for outside collection, if you give your accounts receivables the attention they deserve.

 

 

Small Business Debt Collection: The Truth About 10 Common Myths

Posted by Marilyn Miller on November 28, 2018  /   Posted in Uncategorized

Does every small business not have an active plan to recover bad debt? Good question! They certainly do need to focus on their accounts receivables just as they focus on new business sales and customer service. Nothing will hurt cash flow more than slow-paying or non-paying customers. Some business owners are hesitant to tackle their accounts receivables because of some old myths about cash, credit and bad debt collection.

 

Here is the truth about some common myths about credit and collections. Some items are linked to detailed articles on the subject. Check them out!

  1. Accounts Receivables are NOT cash Your receivables are a promise to pay. You cannot grow your business with them, pay your employees with them or use them to buy new equipment. If you let your receivables sit on your books too long, the promise to pay becomes less likely to be realized, and may disappear forever. The money is not earned until it is in your bank account.
  2. Small businesses cannot get a tax benefit from writing off bad debt. You are throwing money away if you forego recovery of your accounts receivables thinking you can just “write off” the balances and obtain a tax credit.
  3. Debt collection is not too expensive.  You can and should negotiate a competitive rate with the agency, but not all rates are created equal. Most collection agencies work on a contingency basis, which means you pay no money upfront, and the agency retains a percentage of what they collect for you.
  4. Waiting too long to pursue bad debt is not a good strategy, and can hurt your business.  Delay can hurt you. You are losing the use of the money, and you are also betting on the customer still being around or being able to pay when you decide it is time to collect. 
  5. Payment plans should never be based on a handshake. They should always be documented
  6.  Going to court and getting a judgment is not always the best strategy. Not all claims should be litigated. Part of effective small business debt collection is having a collection strategy that varies according to the nature of the debt.
  7.  Credit bureau reporting is not the best way to collect money. There are risks associated with credit reporting that you should know.
  8. Bankruptcy does not always mean you cannot collect at least some of your money. Here is some good information on what to do if a customer declares bankruptcy. 
  9. Bounced checks can be recovered. Laws vary by state, and you must follow the law, but you can not only recover the check amount, but also associated costs.
  10.  Collection agencies do not  always buy debt. In fact, many small business local collection agencies do not buy the debt, but rather work in an agency agreement with the original creditor. Most of the large debt portfolio buyers purchase debt from banks or other lending companies. 

Collection Agencies on Cyber Monday

Posted by Marilyn Miller on November 26, 2018  /   Posted in Uncategorized

Collection agencies rely to some extent on technology to recover bad debt for you. In order to achieve the best results for you, they use technology for processing payments, communicating with your customers and also to research delinquent customers to find new contact information or determine ability to pay.

Payment technologies should align with your customer and how they like to pay.

People do not like speaking with collection agencies (shocking, I know) so by making it easy for them to pay without speaking with anyone,  collection payments become like other bills people pay.  In the past 15 years, we have seen a complete reversal in how people pay us with a majority paying online through our payment portal versus mailing checks.

Communication with delinquent customers is easier with enhanced technology.

Depending on the type of collection, collection agencies can use email or text to communicate with debtors. It works well for all commercial (business-to-business) collections, and in some cases for consumer (business-to-consumer) files. For consumer files, however,  consent is mandatory before contacting consumers by email or text. Collection agencies must also follow the law as respects required disclosures. For medical collections, collection agencies must comply with HIPAA by using only secure methods of communication.

Technology is used by collection agencies to locate people.

Collection agencies call the process of researching debtors “skip tracing“. Collectors use both proprietary sites from companies like TransUnion to find new addresses, phone numbers and to assess the ability of a debtor to pay. A good researcher also uses public information from social media sites to come up with a full profile. Since nearly 75% of consumer files referred for collection need some sort of research, this part of the collection process is essential.

In all of these cases, technology assists collection agencies do their job. However, using only technology without human input often comes up short. For example, collection agencies often batch process files, which means they send huge spreadsheets of data for machine processing. If the process ends there, the job is only half done. It takes a human being to review public data and social media sites to come up with a full profile.

The magic comes when collection agencies use the right balance of technology and personal contact. Technology is great for processing payments, but it takes a person to contact people and set up payment plans.

 

A Mechanic’s Lien and Debt Collection in Maine

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

When you don’t get paid for work that you have done  and if the job is connected to real estate, you may wish to consider the filing a mechanic’s lien.  Maine Revised Statutes 10 section 3251.  Mechanic’s liens are used to secure an interest in and against real estate.  The lien itself encumbers title, and will prevent sale or refinance, provided statutory procedure is strictly adhered.  The release of the filer of the mechanic’s lien is necessary and usually means you get paid.  So the mechanic’s Lien is an effective tool in debt collection, if used correctly.

Mechanic’s liens are used by trade contractors when they are not paid for a service that improves a property. For example, an electrician or painter who works as a subcontractor and is not paid may be able to secure the money owned to them with a mechanic’s lien. While not all services are eligible, Maine statute allows a broad list of services. Generally there has to be a service provided that attaches to the realty and improvement that enhances the value.  Maine is one of the few states  that allows for maintenance of real estate to add value.  So yes, eligible services may include the landscaper who cuts the grass and plows snow, or even a cleaning service.  Maintenance maintains value and thereby adds value so oil, gas and wood to keep the boiler on and prevents pipes from freezing can be considered.

You have a limited time after you provide your service to file a mechanic’s lien.

As a subcontractor, not working directly for the owner, the notice of lien must be filed within 90 days (from last date of service).  The notice is filed on the land records  with the Registry of Deeds in the county where the subject property is located. You are required to send a copy of the lien to the property owner as well as the general contractor.  To enforce the lien, an action in court must be filed within 30 days of the notice of lien.  In other words, within 120 days of the last date of service. Simply filing the lien is not enough, you must file a court action within 120 days or your lien will be deemed inoperable as an operation of law, worthless as a collection tool.

This failure will not prohibit you from taking other collection actions, provided you operate under the statute of  limitations, which is 6 years in Maine.  The 90 period is a prohibition for the filing of a mechanic’s lien only.

As a general contractor the lien is considered perfected with the filing of the court action, within 120 days of the last date of service. Once the litigation is initiated, the party filing lien must file notice on the land records of the pending action.

Do your homework beforehand, and check to see which liens are ahead of you. It costs money to file a lien, and the last thing you want to do is waste your money attaching a lien to an asset that is already so encumbered that your lien becomes worthless.

Another important thing to consider, especially for those working with consumers, is the importance of a solid contract upfront that has the appropriate language to protect you. . Ask your attorney to check your contract today and save yourself trouble later.

 

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

Posted by Marilyn Miller on November 16, 2018  /   Posted in Uncategorized

Small business customer credit allows you to increase sales and grow your business. However, business owners must be smart about extending credit. Not all customers deserve to receive the same credit terms. Credit agreements must be in writing. Your customer credit contracts are invaluable.

To put it simply, there are three  this condition that create delinquency.

People do not pay their bills due to poor credit practices on their part, poor credit practices on the creditors part, and catastrophic life events.

Customers who do not pay due to their own poor credit practices are the kinds of customer who do not care about the credit rating. They may be irresponsible, overwhelmed or simply believe they do not have to pay. These customers are typically the ones who are referred for collection. Depending on the specific reasons, they may agree to pay the debt in installments while others may have to referred for legal action.

Other customers do not pay due to creditor actions. Yes, I said that. People may not be paying based on something you did or do not do. If you do not send bills promptly or if your bills are difficult to understand, you may be giving a customer an excuse not to pay you. I recently received a medical bill from a pediatric practice. Since my kids are grown, I knew it was a mistake. I called the office and learned that the bill was valid, but that the practice billed everything under an affiliated pediatric group. How confusing!

Other times, small business customer credit goes awry when the creditor does tell the customer upfront what services will cost, and what will and will not be included. For example, a contractor should communicate the applicable hourly rate and minimum charge before going to do the job. A simple email confirming the details of price and service can serve as a simple contract.

Take time to put together a customer contract. Bill promptly. Make sure customers know how and when you want to be paid. Do not be afraid to pick up the phone to speak to customers as soon as they become delinquent.

Customers who do not pay based on catastrophic life events are often the most difficult for recovery. Today, the most common catastrophic life event is either the loss of a job, or an accident or illness that produces a large medical bill. Your best bet in this situation is to do your best to be patient and work to with customers to pay in installments. We set up payment plans all the time with who are out of work. Usually, we begin with small payments and reassess every few months, with the understanding that payments will increase if employment is secured. Some people may become too overwhelmed and declare bankruptcy which could mean you have to walk away. With patience and compassion, however, you will find that even when times are the toughest, many customers want to do the right thing.

 

 

Maine Collection Agencies: How Can They Help Your Business

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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