Accounts Receivable Management: Not a Spectator Sport

Posted by Marilyn Miller on October 27, 2020  /   Posted in Uncategorized

Accounts receivable management is essential to the financial health of a small business. All too often small business owners forego accounts receivable management, claiming that they are too busy with sales or day to day operations.

Everything is fine, they will say. We grew our sales by 50% this past year, and we have to focus on servicing our customers. If we keep them happy, they will pay us. 

Famous last words. All the sales in the world mean nothing if they are only sales on paper, that is, if you are not actually receiving money. I have seen too many business get into a cash bind because they were not paying attention to receivables.

Certainly happy customers are more likely to pay you than dissatisfied customers. However, I have built a business on collecting from people who have never disputed the product or service they received.

Design an accounts receivable program and stick to it.

Do you have an aging report? If not, you must get one immediately.  An aging report shows you which customers owe you money, and how long each customer account has gone unpaid.  It is likely that you already have the software to construct an aging report. If you do not, accounting software such as QuickBooks will do the trick.

Once you have your aging report in place, live with it. Review weekly and come up with a plan to contact delinquent customers. Bring in key staff and assign weekly tasks for follow up. I once had a client tell me that they were in such a cash bind that they were having trouble paying their bills. They began small group meetings every Friday that lasted only 30 minutes but reviewed delinquent customers, which steps had been taken, and what the next step should be.  Just paying to attention and calling customers or sending them a collection letter made a dramatic difference.

We recommend, as a rule, a 90-day process for accounts receivable management:

After delivery of product or service – Customer service call to ask if customer happy service. Use the opportunity to confirm billing information.

  • Thirty days – Friendly reminder letter or notice
  • Forty five days – friendly reminder phone call
  • Sixty days – Second letter. You can draft a completely different letter or simply send the first letter with a stamped, “Second Notice” on it. Be creative here. Use a different color paper, or a sticker in a bright color that lets them know they need to pay you.
  • Seventy- five days – Phone call from management.
  • Ninety days – Final notice to pay within ten days or be turned over for collection.

You may want to wait a little longer, say 120 days for some customers, especially if they represent repeat business to you. You may forego outside collection and take them to Small Claims Court yourself.

The specifics are not as important as having a process and having the discipline to stick with the plan. Consistency is key.

Even if you are lucky to have an accounts receivable department, do not sit back and assume everything is fine. Get involved. Lend support. Let the accounts receivable team know you are available to help when needed. Let them know they are a vital part of your company.

Accounts receivable management is not a spectator sport!

Collection Agency or Your Lyin’ Eyes?

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

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

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.

Credit Bureau Reporting and Debt Collection: The Upside and the Downside

Posted by Marilyn Miller on October 15, 2020  /   Posted in Uncategorized

Credit bureau reporting is often cited as the key benefit of hiring a collection agency.  A common belief is that if you report a debt to one or all three of the credit reporting agencies (Transunion, Experian and Equifax) it will assure that a consumer will pay a bill. If that were the case, why do 30% of Americans have credit scores under 600, which is considered “fair” credit at best, and poor or subprime, at best? There are also people who have no credit score at all, because they do have the need for credit. Does anyone really believe that these people will be motivated to pay a delinquent bill if they are threatened that the debt will be reported against their credit file?

So what is are the upsides, or benefits  of credit reporting as respects debt collection?

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.

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.

Why My Clients Get Mad at Me and Why They Shouldn’t

Posted by Marilyn Miller on October 13, 2020  /   Posted in Uncategorized

Debt collection for a small business is a team sport. If one person tries to do it alone, the results will be limited. Worse still, if a team is not in sync and does not communicate, they work at cross purposes and chaos reigns.

When I perform debt collection for a small business, I want to be a member of their team and work closely with them to get the best results. Most of the time, it works well.

Most third-party collection agencies work on a contingency basis which means that they take a percentage of sums recovered. They make no money unless they get results. When a collection agency agrees to work to recover a delinquent debt, they take a leap of faith. The agency takes no money upfront because they believe they can recover the debt, and therefore earn a commission.

Imagine pricing your product before you know how much it is going to cost you.

When a collection agency begins to collect a debt, they do not know how much time and effort it will take. It could be one phone call or letter or many. There is simply no way to know. A collection agency generally charges more for older debts than newer ones, but even very recent debts can be difficult to collect. Agencies generally work to recover enough to some money for their customers and make a profit doing so.

Some agencies charge a small per file fee for collection. I have taken several accounts from agencies that use this approach, and have found that their percentage of debt recovered is pitiful. Why? Because if an agency only charges, say $20.00 to collect a debt, they can only afford to spend $20.00 (at most!) collecting it, which is to say, you get very little for your money. Plus you pay it up front, versus the contingent approach where you have no upfront expenditure. The contingency approach, in my opinion, is the only way to go.

So why do customers get mad at me?

Sometimes a customer believes that by charging a commission to recover money for them, I am taking some of “their money”. I get it – it stinks not to get paid. Your collection agency, however is not your enemy. They did not cause the debt to become delinquent.

Some customers get mad because they believe my rate is too high. Usually in this case, they have tried a per file fee, or a low rate, and gotten poor results. The debt has aged, making it more difficult to collect. My rate when I am not the first agency involved is higher, which is standard for the debt collection agency.

Another reason for a higher rate is that customers wait far too long before hiring me. I want my customers to do everything they can on their own, but after 90 days, it is time to bring in the experts.

Lastly, customers are upset when I have to tell them that I cannot add my fees to the debt. I can do it in some cases but not in others. Three factors drive my ability to pass costs along: contract, type of collection and state laws.

Without a contract, I cannot and will not add collection costs to the debt. A customer must agree in advance to pay any collection fees.  If you wait until after you have done the work, to tell them they are going to pay your costs, it is too late. The agreement must be in writing.

The laws vary for collection costs on the type of debt, whether or not they are consumer (business to consumer) versus commercial (business to business). State laws also may limit the costs that can be passed on.

For example, Maine allows costs to be passed along to consumers if there is a contract, and if the debt is not a “credit transaction”, such as an auto loan or credit card. Connecticut, on the other hand, allows only 15% of the total owed to be passed along to consumers. In all cases however, no contract means no fees can be recovered.

So what should customers do instead of being mad at me?

A contract is the single best debt collection tool. Even a simple email that states your price and terms for payment, and states that you will pass along any collection costs works as long as the customer emails back their agreement.

Perhaps it is not possible for small business owners to always get a signed customer contract. I do know that they can be doing it more often than they are currently doing. If you are too busy or do not feel like bothering to get a contract, you cannot blame your collection agency for not recovering the costs.

If you wait too long, you cannot complain about having a higher collection rate. If you focus solely on rate, you are making mistake, as rate is only one consideration in hiring a collection agency.

So, don’t get mad. Get those contracts. Come up with a system to attempt in-house collection for 90 days and then get it off to me. I am passionate about your right to be paid.

Don’t get mad. Get paid. I can help.

Maine Collection Agency: How to Pick the Right Agency for Your Business

Posted by Marilyn Miller on October 07, 2020  /   Posted in Uncategorized

A Maine collection agency can help a small Maine business improve their cash flow by recovering their bad debt. Agencies typically work on a percentage of sums recovered, with rates can vary based on many factors including the age and size of debt, type of business, number of files submitted annually.

A Maine collection agency seeking to recover debt owed by Maine consumers must be licensed and bonded. The Maine Department of Consumer Credit Protection in Gardiner is the licensing authority. A Maine collection agency seeking to recover debt owed by Maine businesses (commonly referred to as commercial or B2B collection) is not required to have a debt collection specific license. However, as with any relationship, you should verify that the agency is indeed a business authorized to conduct business in Maine.

Your first step is to clearly define, and then articulate your collection goals.

Many medical providers prefer a softer, more compassionate approach to debt collection. They want their agency to reflect the personality of their practice. Other companies, particularly in commercial collections want a more dynamic approach, up to and including actions in Maine Small Claims Court.

Once your goals are defined, you must clearly communicate them to potential agencies and see how their approach matches yours.
Other factors to consider are:

1.       Local – How important to you is it that your collection agency be in Maine? We recently successfully completed several large commercial collections for out of state companies who were owned money by businesses in Maine.  Being local created a sense of urgency, and it also provided us the opportunity to see firsthand if the business was still operating. For Maine consumers, a Maine collection agency would have more knowledge of local economic conditions such as mill closings that might impact the consumer’s ability to pay the bill.

2.       Experience – Does the collection agency have experience in your industry? Always ask for you check references.

3.       Credit reporting – While I personally believe that credit reporting is an overused tool in debt collection, if it is important to make sure the agency has the capability to do it.

4.       Research tools – Half of the people sent for collection will need some sort of research (referred to as “skip tracing” in collection-speak. How does the agency go about finding people and their assets?

5.       Technology – Does the agency have the tools to give you the information you need? Also, does their use of technology in contacting debtors work for you? Many agencies use automated calls to contact debtors – will that work for your customers?

6.       Compliance – Consumer agencies are governed by the Fair Debt Collection Practices Act. Medical debt collection must comply with HIPPA.

7.       Legal Capabilities – While Maine collection agencies who are not attorneys cannot represent you in Small Claims Court, if you believe you may want legal services, make certain your agency has a relationship with attorneys who can take your case to court. In the same vein, make certain the agency is experienced in post-judgment collection.

8.       Rate – Notice I listed this factor last – not because it is not important. A competitive rate is great, but make sure you know what is and what is not included. Most Maine collection agencies work on a “no collection, no fee” or contingency basis. What services are included in the rate? A low rate may mean your customer only receives one letter and a few phone calls.

In the end, hiring the right Maine collection agency may be the smartest move you make for your business this year. Best of luck with it.

Credit and Collections Pitfalls and How to Avoid Them

Posted by Marilyn Miller on October 05, 2020  /   Posted in Uncategorized

Credit and collections for small business can be tricky, but a good plan for the way you extend credit to customers, how you monitor your receivables and how you recover money not paid to you is crucial. Here are some pitfalls to avoid in the coming year.

One size fits all credit – Allowing customers to pay on credit is a privilege you should extend in a thoughtful way. Not every customer should be granted credit arrangements. Know your customers and how they pay. Save your best credit terms for your best paying customers. Others should earn the privilege.

Lack of Documentation – Every phase of your credit process should be documented, from a customer credit application to customer contract. Even a simple email confirming basic details is better than nothing. Remember though, that a customer contract must be bilateral, meaning that both parties must agree to it. Be sure to get a signature or an email confirming their agreement to contractual details.

Late or inaccurate billing – So many collection issues arise from bills that are either incorrect or are sent far too late. Invest some time for quality control before your invoices are sent to customers. Bill promptly.

No in-house collections procedure. You should always be on top of your 30/60/90 aging. Have a plan to contact delinquent customers by phone and by letter.

Waiting too long to outsource collections – After 90 days, if your customer is ignoring you, you need to bring in the experts. You cannot do it all, and when you hire a collection agency, you free up some time to focus on other aspects of your business. Waiting too long will cost you, and not only with a higher collection fee.

It does not take a good deal of time to improve your credit and collections efforts. It only takes commitment to a process.

How to Avoid Hiring a Collection Agency

Posted by Marilyn Miller on October 02, 2020  /   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.

Consumer Rights and Creditor Rights: A Debt Collector’s View

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

Consumer rights and creditor rights are not mutually exclusive.  As respects collection of a delinquent debt, a consumer has the right to be treated respectfully. A consumer has the right to obtain complete and accurate information on the debt. Consumer rights are protected by the Fair Debt Collections Practices Act, or FDCPA a law put in place to shield consumers from abusive and deceptive practices by third party debt collection agencies.

The FDCPA is a very good law.

Consumers need to be protected from unprofessional collection agencies. You need only google “collection agency scam” to find a host of horror stories. Some of the news reported is not actually done by collection agencies, but by people pretending to be collection agencies to scam people by pretending to be the IRS, and so forth. Nevertheless, there are bad players among debt collectors – just as there are bad players in every industry. There are also many reputable collection agencies working hard to return money back to business owners and keep the economy moving.

Creditors also have rights, including the right to be paid for the work they do.

None of my clients want to work for free. Would you want to work and not be paid? Creditors have a responsibility to protect their right to be paid by communicating to their credit customers upfront the terms and conditions of their payment policy.

An effective debt collector stands at the intersection of consumer rights and creditor rights.

They are an advocate for their client – the creditor. The goal is and always should be to get the creditor paid. However, if consumer rights are protected, and the debt collector can clearly and professionally communicate with the consumer, chances of success are high.

Consumer debt collectors must be professional yet persistent. There really are instances where people have suffered a life even that leave them unable to pay. There are also instances when people do not take their responsibility to pay for services seriously. A good debt collector knows how to tell the difference.

So when does the process break down?

It breaks down when one or more of the parties neglect the rights of the other party. If a debt collector is abusive, chances are a consumer will take legal action. When a consumer does not respond to numerous requests for payment, then chances are the debt collection will progress and could impact the consumer’s credit rating or put the assets of the consumer in jeopardy. If a creditor is careless with their credit practices, and if they do not work in tandem with their collection agency, it will become difficult to get the best results.

Respect, professionalism and most importantly, communication are essential for all parties. Collection agencies must adhere to the law, and work with consumers to set up payment arrangements. Consumers should realize that when a debt is referred for outside collection, it is time to do something – even if that something is letting the agency know they cannot or will not pay. Creditors should trust and support their collection agencies, and give them all the tools they need to succeed.

Accounts Receivable Management 101

Posted by Marilyn Miller on September 30, 2020  /   Posted in Uncategorized

If you are a small business owner, accounts receivables management should one of the things you do you really well. Alas, it often takes a back seat to sales and everyday operations. Imagine though, what would happen to your cash flow if those new customers did not pay you? You might be forced to restrict credit lines, which would make you less competitive. You would have to divert your attention from managing your business to come up with a plan to bring the money in. Accounts receivables management therefore, is essential for sales and operations of your business. One simply cannot exist without the other.  So how do you manage your accounts receivables?

Your first step is to make smart credit decisions. Get to know your customers. Not every customer deserves credit from you, and not every customer to whom you extend credit should get the same terms. Do as much as you can to gather as much information as you can on a new customer, including credit references, and verify them.

Once you have decided to extend credit to a customer, document your arrangement with a customer contract. It is nice to think that you can do business on a handshake, and sometimes you can, but why take the chance? Many of the files that land on my desk as delinquent desks are undocumented “handshake” deals. An oral contract is often accepted in a Court of Law, but an oral contract leaves open the opportunity for a customer to remember your oral arrangement differently, and remember it differently they will as soon as there is a payment dispute or delinquency.

No time to prepare a formal contract? Send a simple email confirming basic details including when and how you expect to be paid, and what will happen if you are not paid on time. Remember though that a contract must be bilateral, so make sure that your customer confirms that they agree. Once they agree, you have a simple contract, which is certainly better than nothing at all.

Lastly, develop and commit to a process to monitor and track your your receivables. You (or a staff member you trust) should be intimate with what you have outstanding at 30, 60, 90 and over 90 days and have a plan of what to do at each stage of aging. Get on the phone and speak with your customers. Send a well worded collection letter. Hire a collection agency. Use the court system. In short, take action!

Accounts receivables management, if properly executed, will impact every aspect of your business. You will have more time, more sales, better cash flow. On the other hand, if you do not manage your receivables, they will end up managing you.

What Does a Debt Collector Do All Day?

Posted by Marilyn Miller on September 24, 2020  /   Posted in Uncategorized
Morning Coffee and Promises

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.

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 uncollectible 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.

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