“Ask CashFlo” is a credit and collections advice column for small businesses. Questions may be submitted via email to flo@askcashflo.com. Follow Ask CashFlo on Twitter @AskCashFlo. CashFlo reminds readers that she is not an attorney and nothing in this column should be construed as legal advice. As CashFlo always says, “When in doubt, consult your attorney”.

Dear Flo,

I am a small business owner and I work with a collection agency to recover bad debt. I took a lot of care selecting my collection agency, and I trust them. However, someone told me about a law called the Fair Debt Collection Practices Act (FDCPA) that consumers can use to sue debt collectors. What is this law and do I, as the creditor, have any liability?

Curious in Cumberland

 

Dear Curious,

The Fair Debt Collection Practices Act (FDCPA) is a federal law that was designed to help protect consumers against certain “unfair, deceptive and abusive” practices by third party debt collection agencies. The law prohibits certain actions such things as the use of profane language or threat, pretending to be a government agent and calling outside of certain acceptable hours. It also requires debt collectors to provide verification of the debt when asked to do so. In addition to the federal law, many states have their own version of the FDCPA.

CashFlo believes that the FDCPA is a very good law which was written for a very good purpose. However, this good law should never be used as a way for someone to get out a paying a bill. CashFlo has heard of some cases of large attorney fees being awarded for very minor, technical mistakes that essentially have not harmed anyone, and this is cause for concern.

You, as a small business owner, or the “creditor” are basically not liable for FDCPA violations of your collection agency. However, you should always use caution when hiring an agency to make sure they understand and comply with the law. 

Also, CashFlo has seen some small business owners “cheap out” to avoid paying debt collector fees by entering into an arrangement where they pretend to use a law firm or debt collector but actually do the work of collecting themselves. This, small business owners, is a CASHFLO  NO-NO! Here is an example of how it backfired on a business that was found liable for pretending to use a debt collector when they were actually doing it themselves.

So if you want to improve your cash flow and recover bad debt, don’t fool around, and don’t take half measures. When you are not paid, you have nothing, and your agency will get you something. Suck it up and get to work!

Yours truly,

CashFlo

PS. Want some tips on how to reduce bad debt in your business? Here they are!