Debt Collection Techniques
Here are some sound debt collection techniques that can be followed by businesses to mitigate the bad debt crisis:
Sending a pre-collection letter.
Hiring a collection agency.
Doing it yourself.
Sending A Pre-Collection Letter
Most businesses don’t want to “play the bad cop” with their clients, so they approach a collection agency, which for a nominal fee sends a notice to the defaulter asking him or her to pay up.
Remember, a notice from a collection agency is much more effective than the notice from your company itself. It tells the defaulting customer that you have now hired a professional help to collect the dues and, thus, it increases chances of customer paying up the debt faster. The ‘fear factor’ of credit rating damage is associated with collection agencies.
Hiring a Collection Agency
A collection agency under the Fair Debt Collection Practices Act is one that recovers debt on behalf of others. It employs various methods to recover dues from errant customers:
Collection calls are a necessity in debt recovery. Handling the collection call in a calm and professional manner can make the difference upon which collections are made or lost.
Skip tracing is a detection method adopted to find a debtor who has absconded either intentionally or unintentionally.
Forwarding occurs when a collection agency forwards a debtor’s account to another collection agency, possibly because it does not have the authority to conduct business where it is currently located.
Flow Forwarding is a novel concept in which a collection agency contracts with a business to purchase all its bad debts on a periodical basis.
Doing It Yourself
As mentioned earlier, most businesses suffer from bad debts because of a lack of a clear debt management policy. Most organizations would minimize their debt management if they had clearly defined credit policies. Moreover, a clear understanding of the law needs to be had before a business drags its clients to court. This is the tedious bit and therefore businesses need to be very sure with their preparation.
Collection Agency Services offers you a wealth of information on how to select the best collection agency for your business.
Types of Collection Agencies
Financial Credit Collection
Commercial credit collection agencies provide services to the financial sector like banks and financial institutions. The types of debts range from auto loans to credit cards to mortgage payments. These credit collection agencies buy bad debts at discounts from banks, retailers, and auto financiers and then engage in the debt recovery process.
Health Care Credit Collection
The prime motive of a health care provider is to ensure that a patient receives quality and timely medical attention. An additional responsibility to collect debts may dilute the focus of the health care provider and also affect the financial strength of the organization. Hence a health care provider can agree to partner with a credit collection agency for any legal debt recovery. The methods employed for debt recovery are determined by agreement between the healthcare provider and the collection company, in line with the parameters allowed by law.
Retailers
Credit collection agencies also offer their services to retail business operations. Debt collection for these creditors includes debts like unpaid health club memberships and telephone bills.
Bad Check Recovery
Bad checks/NSF can be detrimental to the cash flow of a business and the collection of bad debts arising due to fraud can become an unwieldy task for a business. Collection agencies are equipped with the necessary know-how and resources to tackle such cases involving bad checks. Such collection agencies would pay the receiver an up front sum of a certain percentage of the face value of the check.
Outsourcing the credit collection process allows the creditor to pass off debt liability to an agency that is better equipped to recover these bad debts. The bad debt account is evaluated and the creditor is paid an up front sum. The liability of the debts is then passed on to the collection agency.
Collection Agency Services offers you a wealth of information on how to select the best collection agency for your business.
Increase In-House Nursing Homes Collections
The following nursing home collections report outlines 11 guidelines you can follow to increase the amount of in-house long term care collections your facility collects.
1] Have A Defined Long Term Care Collection Policy
One of the major causes of delinquent nursing home receivables is that the facility has not clearly defined to its residents/responsible parties and business office staff when the accounts are to be paid. If you are currently ‘playing-it-by-ear’, and have no consistent guidelines for your business office to follow – you are inviting bad debt. These guidelines should be made clear to both your business office and admissions staff. If you consistently apply your collection policy to every nursing home account, you will enjoy a large decrease in delinquent accounts.
2] Educate Residents/Responsible Parties On Your Policy Before Admission
If residents/responsible parties are not educated that their nursing home accounts need to be paid on time – then chances are they’ll pay late or sometimes not at all. Make it crystal clear what day of the month that you bill, and when their payment is expected. Let them know the consequences of non-payment up front – not after they become delinquent. This eliminates potential future misunderstandings from your residents/responsible parties. Statement of your payment policy when payment is overdue is a strong first step in facilitating payment.
3] Invoice Promptly and Bill Regularly
If you don’t have a systematic invoicing and billing system – get one. Many times the resident/ responsible party hasn’t been re-billed or reminded to pay in a timely manner. This situation regularly occurs in homes where there isn’t enough billing staff in your business office, or the staff is spread to thin to invoice or bill on a timely basis. It is amazing how much money is often left uncollected because the resident/ responsible party was never billed or contacted a second time.
4] Keep Accurate And Timely Payment Records
Once a resident is admitted, it is vitally important to maintain accurate and timely records on their payment history. If you see any deviation from past payment patterns, and especially if payments become unusually slow, immediate follow-up is warranted. This not only gives you an early alert to impending payment problems, it also gives you the chance for early intervention if there is an outside influence (i.e. responsible party withholding payment, etc)
5] Contact Past Due Accounts More Frequently
There is no law prohibiting you from contacting a resident/responsible party more than a month. The old adage ‘The squeaky wheel gets the oil’ has a great deal of merit when it comes to collecting delinquent accounts. It is an excellent idea to contact late payers every 14 days. Doing so will enable you to diplomatically remind the resident/responsible party about your terms of payment and give you more chances to discover the real reason why they are late.
6] Develop A Systematic Plan To Follow Up On Past Due Accounts
Determine ahead of time what actions you will take and a defined time frame when the actions will take place. For example, at 15 days delinquent – make a phone call. Your business office can start with a ‘courtesy’ call to make sure the statement was received. At 30 days delinquent – send another statement with a message, “This balance is 30 days delinquent, please remit immediately.” At 45 days your business office can call and make a stronger demand for payment. Having a plan and adhering to it makes both you and your residents/ responsible parties aware of the fact you expect to be paid on a timely basis.
7] Use Your Aging Report – Not Your “Feelings”
Many well meaning business offices have let an nursing home account age beyond the point of ever being collected because they ‘felt’ that the resident/responsible party would eventually pay. While there certainly are a few isolated cases of unusual payment situations, the truth is that if you aren’t being paid, usually someone else is. So stick to your systematic plan of follow up. You’ll soon know who intends to really pay and who does not. You can then take appropriate measures once you know where you stand.
8] Make Sure Your Business Office Is Trained
Even experienced business office members can sometimes become jaded when dealing with debtors. This usually occurs when the residents or responsible parties: have made and broken promises for payment, did not file information at the county office, avoided your attempts to make contact, moved with no forwarding address, or just flat out declared they have no intention of paying. Make sure your business office is firm yet courteous when dealing with the residents/responsible parties. Your business office could benefit from customer service training because they must ’sell’ the residents/responsible parties on the idea that you expect to be paid. Make sure your business office is trained to not only bring the nursing home account current, but to also maintain good will with your residents/responsible parties.
9] Admit And Correct Any Mistakes On Your Part
Sometimes residents/responsible parties do not pay because they feel you have made a mistake. If the basis of the non-payment is a dispute over the quality of care, a mutually agreeable settlement between you and the resident/responsible party should be arrived at promptly. The resident/responsible party may use a minor dispute to withhold substantial payment. Insist that the undisputed portion get paid immediately, indicating the balance will be negotiated. This will not only help to collect payment payment, it shows the resident/responsible party that you are listening to his or her concerns.
10] Use Third Party Nursing Home Collections Intervention Sooner
If you have systematically pursued your delinquent nursing home accounts for 60 to 90 days from the due date, and they still have not paid, you are being delivered a message from your resident/responsible party. If you have implemented a good collections policy, you have requested payment four to six times in the form of statements, letters, phone calls and possibly personal visits. Statistics show that after 90 days, the effect of in-house collection efforts wear of 80%”. That means that the time and resources of your business office should be focused within the first 90 days of delinquency where you have the best chance to collect the delinquent nursing home balances. From that point on, a third party can motivate a resident/responsible party to pay in ways you cannot, because of both the perceived and real consequences of dealing with a collection agency or attorney.
11] Remember That Nobody Collects Every Account
Even by setting up and adhering to a specific long term care collection plan, there are always some accounts that will never bee collected. By identifying these nursing home accounts early your billing staff a great deal of time and money. Even though a few may slip by, you will find that the overall number of slow pay and nonpaying accounts will greatly diminish, and that’s a victory in itself!
Collection Agency Services offers you a wealth of information on how to select the best collection agency for your business.
Bad Debt Recovery
Bad Debt Identification
Identifying bad debt is not as easy as it sounds. But the earlier it is done, the better are chances of recovering it. Here are some signs of customer behavior that can identify bad debt early:
Customer fails to pay as per the agreed payment terms.
Customer makes repeated unrealistic complaints about the product or service quality whenever asked about the payment.
Customer continuously asks for more time to pay debts.
Customer’s contact person is not traceable whenever you call for debt collection.
Your phone calls and/or letters are not answered.
Apart from these, you also have to keep an eye on customers who constantly pay late. Ongoing communication between the sales and finance departments can go long way in preventing bad debts.
Keeping track of market sources such as magazines, other customers, and suppliers will also help you identify customers who are not in healthy financial condition and help you recover your dues from them at the early stage.
Bad Debt Recovery
Once you identify the bad debt, the first step is to make attempts yourself to recover it in-house. This way you can maintain a relationship with the defaulting clients. It also helps you create documentation and evidence to show that you have made enough attempts to recover the dues. If the collection staff has knowledge of the Fair Debt Collection Practices Act and experience in debt collection, some of the debt can be recovered easily.
But an in-house staff is not always sufficient. If the defaulting customer doesn’t pay any attention to your repeated efforts, it is advisable to refer the case to a professional collection agency. These collection agencies are often well equipped to trace and deal with delinquent customers and bad debt recovery. But you need to make sure that the collection agency you are working with meticulously follows the Fair Debt Collection Practices Act and doesn’t step beyond legal boundaries. Remember that the collection agency is representing you, and you don’t want it to get you in trouble with the law.
Also make sure that you give all necessary data to your collection agency on all cases referred to them. It is also important to let them know how important each case is to you so they can apply different techniques to different cases.
Collection Agency Services offers you a wealth of information on how to select the best collection agency for your business.
Selecting A Collection Agency
If you run a business, you are sure to have some customers who require a lot of follow-up before they pay you. Often you spend too much time and energy to collect money that is rightfully due to you. Giving this task to a collection agency will help you:
Concentrate on your core business rather than on non-core tasks like debt recovery. Increase your debt collection and reduce bad debt.
Selecting A Collection Agency
You must consider the following factors while selecting a collection agency:
1. Experience
How many years of experience does the collection agency have?
Does it have experience in the debt collection services you require, such as commercial, medical or check collection?
Can it collect debt for your kind of account balance?
Can it give references?
2. Professional Collectors
Are professional collectors in the collection agency well trained to deal with your customers? Remember, they are going to represent you and tempers may run high in debt collection. One bad conversation can spoil your relations with the customer.
3. Expertise In Local Debt Collection & Debt Collection Laws
Debt collection agencies use many techniques. These include skip tracing and written communication.
Does your debt collection agency have enough local sources for skip tracing or finding people who are avoiding you?
And does the agency have good knowledge of local debt collection laws so that they don’t go beyond legal boundaries?
Breaking laws for collecting debts can prove more harmful to your business than bad debt. If your customers are spread across multiple states, it is better to select from collection agencies having offices in those states.
4. Options
Does the collection agency offer you multiple ways of debt collection and will it follow only ways approved by you?
5. Value-Added Services
Does the agency offer value-added services such as advice on contracts and legal documents and eliminating customers having bad payment histories?
Collection Agency Services offers you a wealth of information on how to select the best collection agency for your business.