Small Business Debt Collection: Be SMART

Posted by Marilyn Miller on October 22, 2019  /   Posted in Uncategorized

Small business debt collection may be difficult. A commitment to a regular process to monitor aging accounts receivables is essential to the health of your business.

If you want to make the process work smoothly, you need to be SMART about it.


Do not make the process more difficult than it needs to be.  Schedule your follow up for 30, 60 and 90 days, so that the process is always the same. Plan your process in advance and prepare template collection letters that you can use again and again.


Your small business debt collection process is fluid. You will find things that work, and things that do not. Monitor the process, tweak as necessary.


If you are passive about small business debt collection, you may see some results, but it takes a sustained active effort to get the best results. Plans are great, but you have to actually do it – collecting is an action word.


Practice makes perfect. Your first call to a customer may not work, but a second or third just might.


While you technically have years to collect from delinquent customers, (as long as they are within the statute of limitations for your state), how will your cash flow suffer while you wait?  If you are timely with your requests for payment, your customer will know that you are serious.


Small Business Credit and Collection: Top 5 Mistakes

Posted by Marilyn Miller on October 07, 2019  /   Posted in Uncategorized

Small business credit and collection practices, or lack thereof, can make or break a small business. Unfortunately, many business owners give all their attention to sales or daily operations. A good credit policy will grow sales, but you must stay on top of your credit customers.

Here are the top 5 credit and collection mistakes small business owners make:

Poor underwriting

If you go to your bank for a loan, they gather information about you, and they make a decision based on that information. Gather as much information as you can about a customer who seeks credit from you, including business references. 

One size fits all credit limits

All customers do not deserve the same credit terms. A long-term customer should receive better terms than a new business that has no credit history. Know your customers and how they pay. Adjust credit limits up or down, as necessary.

No contract

Every customer that receives credit terms from you must sign a contract. Let me repeat that ….every.single.customer. A contract, which must be in writing memorializes your credit arrangements. Terms that are well communicated means fewer disputes down the road. A contract can also reduce your costs if you need to refer customers for outside collection.

No consistent program to manage accounts receivable.

If you do not manage your accounts receivable, they will manage you. You or someone you designate must take responsibility for monitoring A/R and make a consistent effort to follow up on customers with aging receivables. 

Waiting too long to hire a collection agency

I once had a customer tell me that he had invoiced a customer monthly for two years. After 90 days or so, didn’t someone think maybe the monthly dunning was not going to work? The longer you wait, the more chance you are going to pay a higher rate for collection anyway. Hire a collection agency you can trust so that you can focus on current customers. 





Getting Personal (Guarantee) with Small Business Credit

Posted by Marilyn Miller on October 04, 2019  /   Posted in Uncategorized

What is a guarantee? It is a promise — a promise that something will work the way it is supposed to work.

When someone makes you a promise, you tend to believe them. If someone guarantees their product or service to you, you are probably more likely to choose that product or service over another.


Would you buy new equipment for your home of office without some sort of guarantee that it would work in a certain way? Of course not. Similarly, you would be hard pressed to find a bank or leasing company that would lease you a piece of equipment or loan you money for your business without a personal guarantee.

What is a personal guarantee? Simply put, it is an individual’s pledge that they will personally pay any sums owed in the event their business fails or is unable to pay. 

Small business owners sign personal guarantees all the time, yet are reluctant to ask a new business customer for a personal guarantee. Ask! If someone is unwilling to sign a personal guarantee, ask yourself why. You may take a closer look at this customer’s creditworthiness. 

We don’t want to tell you not do business with someone who won’t personally guarantee their business debt – that is your decision to make. But at least ask the question, and make an informed decision.

We will tell you that we see large receivables all the time that become noncollectable when the company dissolves and there is no personal guarantee.

Ask your attorney to draft a personal guarantee as an addendum to your customer contract. It is a wise investment that can save you time and money down the road.

Credit and Cash Flow for Seasonal Businesses

Posted by Marilyn Miller on October 02, 2019  /   Posted in Uncategorized

Cash flow for seasonal businesses are tough. One storm can make or break your entire season. For example, a cold snowy winter could be great for a ski resort, while retail stores might suffer if consumers cannot get out to shop.
The effects of the season can also be seen on your cash flow. A warm winter could mean more work for a contractor, but wreak havoc on the sales of a snow plow or home heating oil company.
If your business is seasonal in nature, do you have a plan to keep your cash flow steady in the slow months? Many companies trim operations, lay off staff or temporarily shut down. Some smart companies diversify their operations such as the heating snow plow company that takes on landscaping work, or the home heating oil company that starts an air conditioning division.
What about using the down time to chase down some delinquent customers? You have done the work, and you deserve to be paid for it. You may just have the answer your cash flow problems right in front of you – in your aging accounts receivables!
Here are some steps to take to recover money owed to you:
• Take a look at the aging of your receivables. Start with the 30-day late customers first. Offer a small discount for prompt payment in full. Make sure to mention that the discount is a limited time offer, and that it is for full payment only.
• Draft a collection letter and send it along with a copy of the invoice.
• Call delinquent customers and talk to them. Very often, people are embarrassed to talk about money they owe. Some people just need to know that you will work with them. Make it easy for them to pay you by offering payment plans. Be certain to document all payment plans.
• If you still have no response after writing and calling, consider hiring a collection agency. Find a collection agency that fits your needs. Most agencies work on a “no fee until collected” basis, so you have nothing to lose.
Put the money you have already earned to work for you. It will warm up for cash flow, and heat up your business!

Medical Debt Collection: How Letters of Protection Work

Posted by Marilyn Miller on September 30, 2019  /   Posted in Uncategorized

Medical debt collection is hard enough these days due to changes in the law and higher insurance deductibles. Planning in advance can minimize the number of patient files referred for outside collection. In the case of treatment for conditions resulting from an accident, when asked to delay payment pending an insurance or legal settlement, a Letter of Protection often makes sense.

Consider this case from our collection files. Patient came to a chiropractor after an auto accident. Doctor treated the patient for months and patient accrued a large bill. Patient claimed not to the have the money to pay but promised to pay his bill as soon as his case settled. Patients’s attorney requested and received bills from doctor. Years go by without payment, and all patient contact information is no longer valid. Is the doctor out of luck? No, because before treating the patient, he required a letter of protection from the patient’s attorney.

A letter of protection (LOP) is a letter provided by the patient’s attorney that promises to pay you as soon as the case settles, before the patient receives the final disbursement. An LOP is a solid promise to pay. A lawyer would face consequences for jumping a letter of protection.

Some medical practices only require a lien from the patient, which states that the patient will pay when a settlement is reached, but I have seen too many of these liens disregarded, especially if patient does not get a large settlement. One of doctor clients had only a patient lien, and the patient got his settlement and bought a new car and then had nothing left to pay his doctors. He was not employed, so my doctor was out of luck. A letter of protection would have guaranteed payment.

A lawyer cannot provide you a letter or protection without client approval. If an attorney tells you a patient will not agree to a LOP, then you are under no obligation to treat without payment at the time of service.

Here are some additional things to remember:

  1. Ask the attorney to include in the letter that they will let you know immediately if the case is lost, or if their services are terminated.
  2. If the attorney changes, the new attorney must provide a new letter.
  3. Ask the patient to provide a separate lien to you which similarly states that they are responsible for costs and will pay you when settlement is received.
  4. Make certain to include a clause in both the attorney and patient letter that state that payment is NOT contingent on the case prevailing. The patient owes you whether they win their case or not.
  5. Have a system to follow up on LOP’s. Contact the attorney at least quarterly for updates.

Remember, you are not required to accept a letter of protection. You are doing it as a favor, because sometimes people are badly hurt through no fault of their own and you want to help them. That is great, but you must protect yourself. A legal case could take years to settle, so tread lightly and consider each case on its own merits.

If you can, ask the patient to provide you nominal payments at each visit. You can make this a condition of delaying payment. One provider I know charges $5.00 each visit. Payments will keep your statute of limitations from expiring. Payments also get the patient into a good habit of paying you something each time you see them.

Credit Policy: How to Set One for Your Business

Posted by Marilyn Miller on September 16, 2019  /   Posted in Uncategorized

A credit policy can make or break a small business. A good policy can improve cash flow and reduce the number of files you send for outside collection. A good policy can also allow a small business to comfortably extend credit to customers, thereby becoming more competitive and increasing sales.

On the other hand, a poor credit policy will result in an increase in delinquent accounts receivables. You could be extending credit to customers who are just plain unworthy of any credit terms and should be paying cash up front. You must have a way to protect yourself.

So, what makes an effective credit policy?

Information – Before a customer is allowed the privilege of credit, you must collect as much information as possible. In addition to contact information, a business customer should provide bank and trade references. A consumer customer may be required to agree to a review of their credit report, or at least provide full information for contact, including home/work/mobile numbers and email address.

Underwriting – Once you have gathered the information, verify any references and begin the credit decision process. Remember that not all customers should receive the same terms. I know one small business owner who requires all new customers to provide a small deposit for the first year. He believes that if they have some “skin in the game” they are more apt to take the credit relationship seriously.

Confirmation – All credit arrangements must be confirmed in writing. A customer credit contract will be your best friend, time and time again. Remember that a contract has to be bilateral, meaning that the customer must sign it to indicate their agreement.  Payment plans must be documented, and customers must know that failure to comply with payment arrangement will void it.

It is also important to let key staff in your company – anyone who might interact with the customer – know the specific terms for each customer.  I have seen far too many examples of less-than-creditworthy customers coming into a store when the managers are not present and talking advantage of an inexperienced and ill-informed employee. Sales staff in particular should know which limits apply, and when a customer with a balance should be cut off.

Monitoring – You have to be on top of your accounts receivables. Sleep with them under your pillow if you must, but know them and attend to customers early to avoid delinquencies. Have a collection letter ready to go. Use a process of escalating phone calls to let the customer know you are serious about getting paid. Hire a collection agency and send the agency any file that goes over 90 days delinquent.

Adjusting – Some customers will earn your highest and best level of credit. Others will need to go to a cash basis, or at least provide a steep deposit or credit card on file. Remember that your credit policy must be fluid, and change as your customers change, and also as your business grows.

Your commitment to developing and maintaing a strong credit policy will reap rich benefits, not only in terms of increased cash flow and sales but in increased efficiency of effort for you and your team.

Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Ten

Posted by Marilyn Miller on August 26, 2019  /   Posted in Uncategorized
How long will it take to collect the money owed to me?

Customers often ask me for a timeline for the collection of monies due them. The honest answer is that it will take the time it takes. When we receive a new file, we begin the process by sending them a notification of debt and by attempting to reach them by telephone. Until that point, the process if the always the same. However there are many things we could encounter once we attempt contact:

  • The debtor could pay immediately. Sometimes just the act of receiving a collection call or letter will result in a quick payment. 
  • The file could need new contact information. The first notice could be returned to us and we would then search for a new address. The phone numbers could be no longer in service, and again, we would have to research for a new phone number. 
  • The debtor could dispute the debt, and ask for validation. Even if you have not previously hear a dispute, do not be surprised if one surfaces when referred for collection. A debt collector is adept at getting at the details of the dispute, and will explain the debtor’s concern to you. More information may be needed, and the negotiation will commence.
  • The debtor could set up a payment plan. You would not get all your money at once, but you would get regular payments. 
  • Litigation may be necessary. Sometimes the only way to settle a claim is to file a lawsuit. There are many variables at play at this point. It may take time serve the lawsuit on the debtor. Some courts are busier than others, but it could take weeks or months to get a hearing date. The debtor, now a defendant, could obtain a continuance which would delay the hearing. If you successfully win your case, you would obtain a judgment, but since the court does not collect the money for you, you still may have to employ other methods, like liens to get paid.

The important thing is that provide all information the collection agency will need to help you. Also, do not delay sending delinquent customers to a debt collector. You are not doing yourself any favors by holding onto a file for more than 90 days. In fact, you could be hurting your chances. 


Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Nine

Posted by Marilyn Miller on August 21, 2019  /   Posted in Uncategorized
Does reporting a bad debt to a credit bureau help get the debt paid?

Credit reporting is definitely a tool that collection agencies use. There are times when people decide to clean up their credit because they are buying a home, or just want to be more financially responsible. At those times, consumers will pay the debts that are on their credit reports.

So does credit reporting actually help collect a debt? It can motivate your some people to pay the bill so as to avoid the impact to their credit score. Also, there is a chance that even if your customer does not care about their credit score today, they will at some point in the future. Federal and state laws vary on how long debts can be reported, but the “future” could be years from now though. How long do you want to wait? What is your collection agency doing in the meantime?

When a collection agency reports a debt, it makes their customers, the original creditors feel as if the delinquent customer has not “gotten away” with not paying their debt. The only problem with that thinking is that the delinquent customer already has already gotten away with it!  Credit reporting used for revenge is just silly.  Focus not on getting even, but on recovery – on getting paid.

Which brings me to the downside of credit bureau reporting…

Without even taking into account the security risks of data breach, credit reporting does have its downsides, mostly because people overestimate its effect on debt collection. Credit bueau reporting is only one tool a collection agency can use to collect a debt. My opinion is that many collection agencies overuse it, Ask your collection agency what they will do to recover for you. If credit bureau reporting is the first thing they tell you, it likely means that is pretty much all they are doing. Perhaps they are sending a letter and making a few calls, but after a month or so, the debt is parked on your customer’s credit report and nothing new happens.

In my experience, most people sent to collections are not primarily concerned with their credit scores. It may be an issue, but it is not the most important issue. The most important issue, the one we hear again and again is just not having the ability to pay. Therefore it makes sense to work with people and get them into affordable payment plans, rather than punish them for something that may be totally out of their control. Even for those customers that intentionally stiff you, your focus should not be on getting even with them. Your goal, and the goal of your collection agency should be to recover as much money as possible. It can be done without credit reporting. I know – I have been doing it for 14 years.

As of July 1, 2017, credit reporting agencies were also required to remove many debts that did not have key identifying information on such as social security number and date of birth. Going forward, if do not have complete information on customers, the credit bureaus may be unable to accept reportings. The impact of medical debt on a credit score has also been minimized So an active plan for recovery becomes even more important.

Also, a new law protects current military and veterans from the reporting of certain medical debts. 

Credit reporting and debt collection, therefore, are two distinct things. One is a tool that may or may not work, and the other is a process – an action word. What actions you and your collection agency take will make the difference in getting you paid.

Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Eight

Posted by Marilyn Miller on August 19, 2019  /   Posted in Uncategorized
Is Small Claims Court a good way to collect money owed to me?

 Small Claims Courts were established as a way to allow small business owners and individuals a way to take cases to court themselves, and avoid the expense of hiring an attorney. The process is meant to be simplified, and claims are limited to a certain dollar threshold, which varies by state.

Debt collection using the court system can be effective in certain cases. Other times, it can be a waste of your time and money.

Here are some considerations:

The court does not collect the money for you.

If you take a case to small claims court and win your case, you will be awarded a judgment. A judgment is a court order confirming the amount owed to you. It usually lists the amount awarded and how it is to be paid. The court only gives you the judgment, they do not collect the money – that is on you.

Once you have a judgment, you have many options available to you, such as placing a lien on a property or garnishing wages or bank account. These processes can be complex, and may cost you even more money.

Have a plan on how you are going to get paid. A large percentage of small claims cases go unpaid, because creditors just do not have the time to pursue them unless the judgment debtor pays voluntarily.

Make sure you understand the process and follow it carefully.

Even though the Small Claims process is simplified, each state has procedures that you must follow to be successful. For example, in order to have your case considered, your debtor must receive notice of the lawsuit. This notice, called service of suit, is essential. Your case will be dismissed if you do have it served properly. Some states require you to hire a process server, while others allow you to serve the suit by certified mail. Before you start, check online or call the court and ask a clerk for instructions. Most states have some sort of guide that will be a big help.

Make sure Small Claims actions make sense, economically

Once you have basic information from the court, take a look at the costs involved. The costs could include fees for filing the suit, the cost of hiring a process server, and then the costs involved after you receive a judgment to file liens, etc.  Make sure the math makes sense.

Consider alternatives to do-it-yourself Small Claims

Would it better to forward your file to a collection agency to see if they can get your wayward customer on a payment plan?  If the only reason you want to use the Small Claims Court is to save on a collection agency fee, consider the investment of your time. Do you have the time to spend a day in court?

Also if you have customers sign a contract that allows you to recover any costs of collection, your collection agency can recover them, as long as your state allows it.

So yes, Small Claims Court can be an effective tool in collecting money owed to you. It is not for every case.  Pick your battles. Do your homework, and if you use the courts correctly, you are bound to succeed. 







Debt Collection FAQ (Frequently Asked/Answered Questions) – Part Seven

Posted by Marilyn Miller on August 16, 2019  /   Posted in Uncategorized
What information does a debt collection agency need to collect a debt?

I am often asked by new customers what type of information I need. The short answer is, “everything you’ve got”.  

More specifically:

  • Detailed invoice detailing all charges and payments that documents the amount you want the debt collection agency to pursue. A simple statement with just a total is not enough. Detailed invoices help the debt collector discuss the debt in question. In addition, a detailed invoice will be needed if a consumer disputes the debt. By law, if a consumer disputes a debt and asks for verification, the debt collector must send it within 30 days. 
  • Contract or any agreements signed by debtor agreeing to pay. Send a signed estimate or work order, if you have one. 
  • Any and all information contact information. Even if the information is no longer valid, your debt collection agency can research and find new information.
  • Any correspondence, especially regarding a dispute.
  • Any other information that will assist in the collection of the debt, such a copy of a bad check.
  • Also, if there are specific circumstances regarding the origin of the debt, detail them. For example, if the bill is the result of an emergency call in the middle of the night, that is significant. 

The better the information you send the debt collection agency, the greater their chances of success.

If you learn new information, pass it along to a debt collector. A debtor obtaining a new job or moving to a new state could help the agency determine a more effective strategy to get you paid.

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