Collections Management
How long does it take your customers, clients or patients to pay you for the products or services you have provided?
Have you developed a consistent collection management program?
Your answer to the above questions is a leading indicator as to how well you collection management is. Sending an invoice doesn’t always result in payment. Successful collection management s a matter of making your payment terms crystal clear and separating collection management from new business functions, in other words – keep your emotions out of collection management!. You can’t be hesitant or soft in collection management.
Collection management is a sticky subject because it can require getting tough with the very same customers that pay your salary. Many small businesses handle the collection management process in-house, either by having their sales staff with the task of collecting their accounts (talk about playing on both sides of the fence) or by using billing staff that have never had formal collection management training.
Frequently, a business will consider turning over a past-due receivable to a commercial collection agency after it has been outstanding for 90 days. At their core, collection agencies try to get the money owed by using a combination of letters and telephone calls. The are just professional and full time collection management firms.
Monitoring slow-paying accounts and adopting timely and systematic billing practices are just two ways you can help reduce your receivables using collection management.
Collection Agency
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Business Debt Collection Letter Writing Secrets
Debt collection letters–an overview
“Debt collection letter” in the singular may be an oxymoron, since unfortunately, one is rarely enough. You should have a series of letters to send to deadbeat clients, each one becoming a little more insistent. Here are some ideas for a five-letter series.
Don’t make your first letter look like a collection letter at all. Make it a friendly note. You’re more likely to get money from someone who thinks of you as a partner than a dun.
If that first letter doesn’t get a response–and usually it won’t–send another the next week that’s more urgent and directly asks for the money. Express your concern that you have not been able to contact the client. Ask if he or she is all right, and if he or she is having any trouble paying.
The next week, if you still have not gotten a response, send a letter referring to the payment terms in the agreement you and the client originally made (you did have some kind of written agreement, even if it was just on the back of your invoice, right?). Mention the effect this nonpayment is having on your cash flow, and that your business’s cash flow is just as important as theirs.
Still no response by the next week? State plainly that you are asking for the money for the final time before referring it to collections. Include a copy of the entire agreement between you and the client.
If you still have not heard back from the client, and are confident that you do not simply have a problem with their contact information, call a collection agencyin fact, you may have wanted to have gotten a collection agency from step one (more on that below).
More Tips for Successful Debt Collections
Don’t wait to start asking for your money.
If it’s been a week since the payment deadline passed, it’s been a week too long. Send out that first “reminder” letter today. Don’t hesitate to send these letters as little as a week apart from each other. The longer your bill goes unpaid, the less likely it is you will ever see that money again.
If you’ve been sending email, try sending paper.
For whatever reason, there are people who take a paper letter more seriously. There’s also the real chance that your emails really are not getting through reliably, or are ending up at the bottom of an overflowing Inbox.
If you do send email, make sure it’s digitally signed. A digital signature proves that you sent the email to the specific recipient. In fact, you might want to make sure all your emails to clients and prospects are digitally signed, to have solid documentation of everything you said, and everything they owe.
Unlike with regular emails, the date, time, “to” and “from” fields can’t be forged, so the email has legal standing, even more than certified mail. While web-based email programs cannot send digitally signed email, there are third-party services that will let you send hundreds of digitally signed emails from a desktop email program for only a few dollars a month.
Follow up your debt collection letter with a telephone call.
As any collection agency will tell you, telephone calls are useful if your debtor has ignored the collection letters. But with caller ID, Caller Blocking and voice mail – if people don’t want to take your calls it is hard to reach them. This technique could be especially effective in the case of someone with whom you know will answer their own phone.
Of course, your writing skills won’t go to waste: you need to make sure you have scripted what you want to say. You should take the same attitude and touch on the same points as your letter. Whatever you do, don’t let yourself get sidetracked, and don’t be embarrassed. They’re the ones who are putting you out.
Don’t know your deadbeat’s telephone number? Try looking up the “Whois” record of the business’s website, which usually has the owner’s telephone number.
Does all this sound like too much work?
If you’d rather be writing proposals than collection letters, there are small business collection agencies that will take on debts for as little as $20 each. After all, your client had enough sense to go to you rather than doing your specialty themselves. Shouldn’t you have as much sense when it comes to your debt collection letters?
Steve Austin is a regular contributor to Let No Debt Remain Outstanding (http://www.let-no-debt-remain-outstanding.com/), a website with articles on choosing a collection agency, along with recommended the best collection agencies.
Debt Collection Agencies
Debt collection agencies are often a viable option for receiving payment on overdue bills. Here you can earn how debt collection agencies work and what to look for in reputable debt collection agencies.
Using outside debt collection agencies to pursue delinquent accounts may seem distasteful , sometimes even downright objectionable. You may be picturing Tony Soprano, baseball bat in hand, using unprofessional means to harass struggling debtors.
In reality, for many years the debt collections industry has boasted high-quality, professional debt collection agencies that have learned how to partner with clients and represent them in a manner consistent with the client’s values – without damaging the reputations of the businesses they collect from. Using professional debt collections agencies can actually help your business grow.
Shopping For Debt Collection Agencies
When looking for debt collection agencies to serve your business start by asking for some references. Debt collection agencies offer different fee structures. Most debt collection agencies work your accounts for a percentage of what they collect. Average commissions run between 30 percent and 50 percent, but sometimes they charge a low flat fee per account.
Usually the larger, national debt collection agencies flat rates, charging you a single fee per account turned over. This method brings at least two advantages:
1} The debt collections agencies give every account equal treatment. They have no incentive to “skim” the larger balances with a bigger pay-off for the debt collector.
2} You can feel more comfortable turning over larger accounts to these debt collection agencies, since it won’t cost you any more than the smaller ones.
Remember, your ability to partner effectively with debt collection agencies depends on how soon you turn the account over and how professional they will represent your business when collecting for you.
Collection Agency
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Collection Agency Selection
Frankly, given the legal and regulatory requirements involved in attempting to collect a debt, it makes as much sense to do it yourself as it does to try to remove your own appendix. A collection agency is, on the whole, much cheaper than a doctors – and lawyers. Do yourself a favor and let a professional collection agency handle this complex matter for you.
It is an unfortunate fact that the collections industry is not regulated much by the government. Absolutely anybody can set themselves up with an “office” and call themselves a collection agency. You don’t have to be certified or accredited by anybody.
You don’t need any kind of special degrees or anything like that to start a collection agency. So, while there are plenty of reputable, ethical collection agencies out there, are also plenty of con artists. It’s a case of buyer very much beware.
Beyond making sure the collection agency is credible, you’ll need to make sure they are right for your business. Each collection agency may have different specialties and, even if they don’t, they might not have the specialized knowledge required to collect in your industry. A collection agency working in medical collections must be familiar with medical terminology and insurance requirements. Make sure the collection agency has the skills and knowledge needed to successfully collect on your particular type of account.
You will also have to consider the fact that the collection agency will have to be paid for their services. A collection agency usually charges you a percentage of the money they collect on your behalf; currently the industry standards range from 25% to50%, depending on the dollar amount of the account, the age of the account, how much overall business the collection agency gets (or expects to get) from you in the long run, and other factors. Some collection agencies charge a low flat fee per collection which may be a more affordable solution for some businesses.
What you really want to know about this collection agency, however, is what they quote as their average recovery rate. The collection agency cannot guarantee that they are going to collect the money you are owed, because their ability to do so will dependent on many unforeseen factors. But the collection agency can give you a percentage of approximately how much their collection agency collects of the accounts that are placed with them, in general and in your particular industry. That is going to be much more important than their commission rate.
Finally, you’ll want to check your potential collection agency out with both the Better Business Bureau and your state’s Attorney General’s Office. Specifically, it is important to discover if there have been any complaints registered against them by disgruntled former clients, or if they have had to defend themselves against alleged violations of the Fair Debt Collection Act. Remember that this collection agency will be representing you and your business. You don’t want the sort of collectors who threaten to break people’s knee caps, or call their neighbors to harass them. Make sure you’re dealing with real professionals.
With the right kind of collection agency, you will be able to develop a real working relationship with the account executive who is servicing your account. These guys can be enormously helpful, particularly when it comes to dealing with bad-tempered debtors. There are going to be distinct legal limits to the kinds of things you can say and do, no matter now nasty people who owe your money become, and consulting your collection agency rep is a lot cheaper than talking to your lawyer. As long as all parties involved recognize the fact that yours is a partnership, in which both of you treat each other professionally, you will be well on your way to a good, long-term working relationship.
Collection Agency
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Collection Agency Practices
The following information is useful to creditors who are collecting money themselves, or are seeking the help of a debt collection agency. You can use these collection agency practices guidelines when evaluating your own in-house collection procedures. For more detailed information please view the Fair Debt Collection Practices Act.
How May A Collection Agency Contact A Debtor?
A debt collection agency may contact a debtor in person, by mail, telephone, telegram, or FAX.
A collection agency may not contact a debtor:
> Before 8 a.m. or after 9 p.m.;
> At inconvenient or unreasonable places;
> At a place of employment if it is known the employer prohibits such contact;
> If an attorney is known to represent the debtor, the attorney should be contacted instead.
Can A Debtor Stop a Collection Agency From Contacting Them?
A debtor may stop a collection agency from contacting them by writing a letter to the collection agency telling them to cease all communications with them and that they will deal with the creditor directly.
Once the collection agency receives the letter, they may not contact the debtor again except to say there will be no further contact. Another exception is that the agency may notify the debtor if the debt collector or the creditor intends to take some specific action. Ceasing contact does not preclude a lawsuit.
May a Collection Agency Contact Any Other Person Concerning A Debt?
A debt collector may contact a person other than the debtor only to discover or verify the debtor’s location. The collector must:
> Identify himself, but he must identify his employer only if expressly requested to do so;
> Not reveal the consumer’s indebtedness to anyone other than the debtor or his/her attorney;
> Not use a post card or in any way reveal debt collection activity.
The collection agency may contact any person besides the debtor about a case only once.
Validating The Debt
Within five days after contacting a debtor about paying a debt, the collection agency must send a written notice that includes:
> The name of the creditor and the amount of debt;
> That the debt will be assumed to be valid unless disputed within 30 days; if disputed, the collector will verify it and send a copy of the verification or of a judgment against the consumer. During a period when a debt is being verified, the collector may not attempt to obtain payment.
Debt Collection Practices That Are Prohibited
Harassment… Debt collectors may not harass, oppress, or abuse any person; they may not:
> Use threats of violence or harm against the person, property, or reputation;
> Publish a list of consumers who refuse to pay their debts, except to a credit bureau or advertise the debt;
> Use obscene or profane language;
> Repeatedly use the telephone to annoy someone;
> Telephone people without identifying themselves.
False statements… Debt collectors may not use any false statements when collecting a debt; they may not:
> Use false, deceptive or misleading representations as to their identity, such as falsely implying they are attorneys or government representatives;
> Falsely imply that a debtor has committed a crime or state that they will be arrested if a debtor does not pay the debt;
> Misrepresent the amount of a debt;
> Misrepresent the involvement of an attorney in collecting a debt;
> Indicate that papers being sent to a debtor are legal forms when they are not or indicate that papers being sent to a debtor are not legal forms when they are;
> State that they will seize, garnish, attach, or sell a debtor’s property or wages unless they or the creditor intends to do so and it is legal to do so;
> Give false credit information about a debtor to anyone.
Unfair Practices… Debt collectors may not engage in unfair practices such as:
> Collect any amount greater than a debt, unless allowed by law;
> Make a debtor accept collect calls or pay for telegrams;
> Deposit a post-dated check prematurely
Collection Agency
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Don’t Let Your Small Business Fall in the FDCPA Trap
When someone owes your small business money, you certainly feel like a victim. But did you know that if you aren’t careful, you could break the law by trying to get the money back?
How to Break a Federal Debt Collection Law
You have a small business, and your bills are coming due soon. You could easily pay those bills if a few thousands dollars of overdue invoices were paid. It’s time to give your clients a few friendly reminders:
1] You call up the biggest debtor at his home number. The debtor’s girlfriend answers and you leave the message that you were just calling to remind her husband about the invoice you had sent last month.
2] You get into an argument over the phone with the next debtor. In the heat of the moment, you say you’re referring the debt to you attorney–when in reality, you know you can’t afford to do that.
3]It’s getting late–in fact, it’s already after 9pm. But you know that debtor number 3 tends to stay up quite late, so it’s practically midday for him. So, you cheerfully give him a call and remind him about the invoice of a couple of months ago.
Congratulations, you may have just broken a federal law three separate times. Plus, you could be sued for it.
Collections Laws Finer Points
Have you figured out what collections law you broke yet? It’s the Fair Debt Collections Practice Act (FDCPA), the federal law for collections. Meant to protect consumers from harassment, it has a clear list of things you can’t do. Let’s look at what you did wrong in the last example:
- Never tell someone other than the debtor that you are calling about a bill. You can, of course, leave a message that you called. You can even call someone simply to find out if they know if a hard-to-reach debtor has moved house. But you cannot under any circumstances let on that they owe money. Simply leave your name and phone number as with any other “call me back” telephone message.
-Never claim to be involving an attorney when you are not. Of course, this might seem like a soft area of the law, since intentions are fuzzy. But, for instance, if it’s clear that suing to recover the debt would cost as much as the debt itself, your bluff will be obvious in retrospect. To be on the safe side, don’t ever claim to have involved your lawyer.
-Never call before 8 am or after 9 pm, unless you have the explicit permission of the debtor. But unless that permission is in writing, you’re safer not calling during those hours, anyway. Of course, it’s not strictly this simple.
For instance, the law is only supposed to apply to consumer collections, not business collections. But with home business and telecommuting blurring the line between work and home, you’re better off following the law’s dictates in every case.
Plus, the law has numerous other protections for debtors–or traps for collectors, depending on your point of view. This is just one reason why you might want to outsource your over-aged accounts receivables to a professional service.
If you want to learn Collection
Laws, then visit http://www.debt-collection-laws.com for the latest information on debt
collection laws and collection agency regulation.
Why A Collection Agency Is Your Small Business’s Best Friend
Does the term “collection agency” put you on edge? If you’re like many small business owners, the mountain of debt you accumulated during startup might have been enough to make you worry about collection agencies every time you answered the phone. But your feelings toward collection agencies are eventually going to change, if they haven’t already.
While no one wants to hire a small business collection agency, it’s a sad reality of doing business that not every customer feels the need to pay, or has the ability to pay all at once.
If you want to stay in business, you’ll need to collect that money. When your most polite and not-so-polite reminders to pay have failed, you’ll need to start getting serious, which means going to an agency.
Collection Agency Services: More Benefits Than Costs
Professional collection agency services will certainly cost more than just writing letters demanding your money back. But the amount of money you’ll collect, not to mention the time you’ll save, will more than pay it back. In fact, when you consider the hourly rate of your employees, or you yourself, collection agencies’ fees really can be quite a bargain.
Let’s say you have an assistant your business pays $10/hour, effectively costing your business $15/hour once you count in employment taxes, benefits, and the overhead of your office. You would be lucky if that assistant spent just five hours total on each debt, and managed to collect half of them. But you would have sunk $150 into each successful collection. Plus, there’s the opportunity cost: $150 worth of time you haven’t spent in growing your business. So the net loss is $300, and probably more if you’re a profitable business that gets a good return on your people’s time.
But if you refer your delinquent debts to a collection agency for $75 each, and they collect three-quarters of them, you’ve invested only $100 per debt collected. Once you factor in all the money from all the debts the agency collected for you that you couldn’t have collected on your own, the return on investment is huge. That’s not even counting the saved opportunity cost, or all the stress you’ll save yourself and your associates.
In the end, your small business has to focus on doing what brings in the money: your core business. Leave your taxes to your accountant, your office repairs to your building manager, and your collections to your small business collection agency.
If you have a small business, medical practice or facility, and you have customers, clients or patients that are not paying you within your stated terms – you might need the services of a small business collection agency.
About The Author
Steve Austin
Free Collection agency information at http://www.collection-agency-information.com