Author Archives Marilyn Miller

Commercial Debt Collection: How a Personal Guarantee Works

Posted by Marilyn Miller on September 20, 2017  /   Posted in Uncategorized

Commercial debt collection is collection of a debt incurred by a business, as opposed to a debt incurred by a consumer.  In many ways, commercial debt collection is similar to the collection of many debts, with two exceptions. The first is that commercial debt collection is not bound by the standards of the Fair Debt Collection Practices Act, FDCPA, a law for consumer debt collection that prohibits absuive or deceptive tactics. However, commercial debt collection should always be practiced in a professional and lawful manner.

The second difference concerns a very effective tool that can make a big difference in the effectiveness of commercial debt collection – a  personal guarantee. a legal agreement in which the business owners accept personal responsibility if the business is unable or unwilling to pay.

If a company owes you money, and refuses to pay you, you can certainly sue them. However, if the company has no assets in its name, there will be nothing to get. Also, if the company discharges the debt in bankruptcy, and you have no personal guarantee, you are out of luck. However, with a personal guarantee, you can pursue the owners themselves.

Here is an real-life example of how a personal guarantee can work. We have a customer who licensed a e-commerce website to a small business owner. Our customer was to receive a monthly payment plus a percentage of sales from the website. The small business owner defaulted on his payment and would not disclose any sales information. He was referred to us for collection. When he did not respond to a written demand for payment, we sued him in small claims court. We had a personal guarantee, so we were able to sue the business and the business owner and received judgments on both.

The small business owner still refused to pay, claiming financial difficulties, although our research led us to believe he had the means to pay. Shortly thereafter, he declared a business bankruptcy and the debt was successfully discharged for the business. Had we not had a personal guarantee, we would have been done. However, we were able to lien the home of the owner, and he will be unable to sell his home without paying the debt first.

You may believe that no small business owner will pledge their personal asssets. Think again. If you have a small business loan or lease, you likely have signed a personal guarantee. Banks use them all the time. So be like a bank and secure the money owed to you with a personal guarantee

Customer Credit: When Good Customers Go Bad

Posted by Marilyn Miller on September 18, 2017  /   Posted in Uncategorized

The other day I received a call from a small business client regarding a two year old debt for $ 2,000 from one of their best customers. They had worked with this client, another small business, for nearly 20 years and had enjoyed a tremendous mutually beneficial relationship until the customer started paying their invoices later and later, and then stopped paying altogether.

Due to their longstanding relationship, our client agreed to give their customer some time. They sent the customer their standard invoice for two years, with no response. They did not want to call, because they did not want to “upset” them. After two years, an invoice came back from the post office and when the owner finally placed a call the number was out of service. The business was gone, and since there was no personal guaranteein place, chances of getting paid on the bill were gone too.
So, how do you tell the difference between a customer in a temporary cash crunch from one who is about to “go bad”, i.e, go out of business or bankrupt and leave you unpaid and unable to collect anything?
The most important factor is communication. The client in the example above told us that his customer had always been a slow-paying but had never gone more than 60 days past due, and had always placed new orders. However, the delinquencies went to 90, then 120, and more, and there were no new orders.
Sadly his longtime customer did not communicate the true extent of his financial difficulties, but also our client missed some red flags that should have triggered action on his part. Simply sending invoices is not enough. After a few months with no response, a collection letter or phone call might have made a difference. When the new orders stopped, it should have been cause for concern.
If a client stays in touch with you and keeps you posted on their progress, then it is a different story, and perhaps you can float them a while longer. But consider the following:
• Get payment of a reduced amount. Keep customers in the good habit of paying you something.
• Offer a discount for payment of reduced amount. Make it a limited time offer and be sure to document.
• Watch and listen for signs that the company is in trouble. (No new orders, rumors of layoffs or other creditors they are not paying)
• Offer payment plans. Again, document.
• Consider hiring a collection agency. Find an agency that will work with you and have a softer debt collection approach for customers you would continue to do business with once their bills.
• Set a limit as to how much new credit, if any, that you will extend to a customer with an outstanding balance.
Know when it is time to terminate a relationship, as painful as that might be. Be compassionate and understanding with delinquent customers to a point, but remember to look out for your own interests first. Remember the line from one of my favorite movies, Cinderella Man. I’ll paraphrase, as the original is a little indelicate: Business man Jimmy Johnston, played by the wonderful Paul Giamatti is asked to “have a heart” and give a down-and-out a fighter a chance. Johnston replies, “My heart is for my family, my brain…is for my business”
So keep in touch with all customers, and keep them doing good things, and know when enough is enough.
Have you ever had a really good customer tell you that they are going through a rough time and cannot pay you? How did you resolve the issue? We would love to hear about it.

Credit Bureau Reporting and Debt Collection: Post-Equifax Breach

Posted by Marilyn Miller on September 15, 2017  /   Posted in Uncategorized

Credit bureau reporting has been a tool of the debt collection industry for years. Delinquent debts are reported in the hopes that a delinquent customer will at some point need to pay off the debt in order to get a loan or improve his/her credit score. Most debts are reported by third party collection agencies but large companies like hospitals, banks etc may report directly.

I have contended in the past that small business owners overestimate the role of credit bureau reporting in getting paid. The best way to get paid is a consistent and persistent effort, of which credit bureau reporting is only a small part.

In fact, some recent changes in reporting laws may prohibit some debts from being reported at all unless the original creditor has full information on social security number and date of birth. I know from experience that many small business owners never collect such information.

And now we have the Equifax data breach, which impacted 143 million Americans. The breach put anyone – good credit or bad – at risk for identity theft. Many Americans are attempting to freeze their credit files, only to find that the call volume is so high that they cannot through to do it.    

While a small business owner likely cannot be held responsible for a breach that is clearly the fault of Equifax, the breach underscores once more that the risks of credit bureau reporting may not be worth the perceived benefit. Medical debt collection has certainly been impacted, since rating agencies have taken steps to lessen the “weight” of medical debts, since so many Americans are in default due to higher out of pocket medical expenses.

When I speak with small business owners, I have found that they often want the debt reported as a punitive measure. And while I get it, I still believe that the goal should be to put aside the anger at customers who don’t pay, and focusing on recovering as much as possible.

If you are looking to hire a collection agency and they mention credit bureau reporting as one of their primary tools, think again. Ask about the things that actually get a debt paid, like researching debtors and a persistent effort to contact them.

Remember the goal is to get paid. Ask your collection agency to focus on the activities that make it happen.

Debt Collection Agency: The 5 Worst Excuses Not to Hire One

Posted by Marilyn Miller on September 13, 2017  /   Posted in Uncategorized

A debt collection agency can help your small business in a number of ways, yet some businesses owners are recluctant to take the plunge. Why? Here are the top reasons small business owners use for not outsourcing their debt collection. Here they are, and our thoughts on why they are really are terrible, no good, awful, very bad excuses:

5. “I am too busy”

Too busy to recover money owed to you? Hiring a collection agency will not only save you time so that you focus on your business, but you can use the extra cash to hire some help.

4. “It’s too expensive”

An unpaid receivable has no value until it is converted to cash. There are lots of collection agencies out there, and it will not be difficult to negotiate an attractive rate. Be sure to use an agency that has not upfront or hidden fees, and is compensated with a percentage of funds recovered.

3. “I can do anything a debt collection agency can”

A debt collection agency does a great deal more than make phone calls and send letters. A good deal of collection involves research, that is, finding debtors and their assets. Also, if you want, collection agencies can report bad debts to a credit bureau. They can also provide information regarding best practices for your in-house credit and collection practices. Remember that a collection agency focuses on collecting for you, whereas you have many job responsibilities. (See #5, above)

2. “If I am patient and wait it out, my customers will pay eventually”

How about the time value of that money, and it how you could be using it today to grow your business? Do you know that there is a statute of limitations on how long you can recover bad debt? Also, while you are waiting, your delinquent customer is likely incurring more debt, and may be selling assets, or having other more proactive creditors attach their assets. Wait too long, and there may be nothing to get.

And the absolute WORST reason not to use a debt collection agency is:

1. “I will lose customers”

How about the time value of that money, and it how you could be using it today to grow your business? Work with your collection agency to identify slow paying customers that you may want to take back once the debt is paid. Find a collection agency that is professional (get references) and one that will work well with your company’s philosophy. You may find that the collection process, seeing some people through hard times, might make customers come back to you and remain loyal for years!

Debt Collection Agency: Five Best Reasons to Hire

Posted by Marilyn Miller on September 11, 2017  /   Posted in Uncategorized

If you have never used a debt collection agency before, you may be wondering what you stand to gain by doing so. Here are the five five best reasons to hire a debt collection agency.

1. Cash flow –

What better way to improve your cash flow than to recover money for the work you have already done? A recent study showed that collection agencies in the United States returned over $ 55 billion back to businesses. If you are a small business you are likely unable to use bad debt as a write off, so attempting to recover at least some of the money owed to you makes great sense.

2. Time –  

Too many business owners or their staff spend far too much tme pursuing delinquent customers. Outsourcing their recovery to a third party will give them more time for sales and customer service.

 

3. No drama –

You or your staff may be reticent to approach customers who owe money. Confrontation is never easy, and not every one has the personality or the negotiating skills necessary for successful recovery of bad debt. I once worked with a dentist’s office in a small town that had over $30,000 in bad debt sitting on their books because the staff felt uncomfortable asking heir neighbors for money. Hiring a collection agency removed them from the process.

4. Specialized tools – A debt collection agency has specialized tools and training to find customers who have moved or changed their phone numbers. It is estimated that over half of customers placed for collection will need some sort of research, or “skiptracing” in the collection industry. 

5. Focus – You as a business owner wear many hats. A debt collection agency has only one goal – to recover money for you.

Of coure, when you hire a debt collectiobn agency, you must make sure that you communicate your goals to them, and make certain they are a good fit for your business. Keeping in close contact with your collection agency and sharing any new information with them will help you get the best results. For example, if you find out that someone who is in collections recently got a new job, or if you hear that they have their house on the market, call your collection agency immediately, as this new information is very valuable to the collection process.

Like any other vendor, your debt collection agency should be a valued and trusted partner, with you for the long term. You deserve to be paid for your work, so let a collection agency help you get paid.

Contracts are Essential for Recovering Money Owed to You

Posted by Marilyn Miller on September 08, 2017  /   Posted in Uncategorized

If you read my blog or have heard me speak, you know that I consider a strong customer contract – even an informal one – an essential part of any credit agreement. A contract will not prevent all customers from defaulting on their payments, but it will cut down on your delinquent customers, especially when you remind them of their signed promise to pay. A contract can grant you the right to charge interest, late fees and in some cases, allows you to recover part or all your costs of collection. If your customer is a business, your contract can ask the owners for a personal guarantee that means they pay if the company goes out of business. In the event a serious default prompts you to take them to court, a contract will be your best evidence. Conversely, if you sue someone and you do not have a contract, that fact will be used against you.

A recent case, Losch v. Advanced Call Center Technologies (ACCT) shows a very good example of how a contract helped defeat a claim under the Telephone Consumer Protection Act (TCPA) The debt in dispute was an unpaid credit card bill. ACCT was a collection agency who pursued collection of the debt, and they used an auto-dialer to call Ms. Losch on the cell phone she provided in her application. The TCPA prohibits auto dialers to cell phones without prior consent. The plaintiff, Ms Losch, sued claiming that she had not consented to be called. However, when she applied for the credit card, she signed a “Consent to Communication” clause. This claim was defeated, thanks to a contract.

 

I know what you are thinking – that is a debt collector case and has nothing to do with me. Think again. Although debt collection laws primarily apply to third-party debt collection agencies, there is a movement to apply parts of the Fair Debt Practices Act (FDCPA), such as misrepresentation and third party disclosure, to all companies that collect their own debt.

A contract does not have to be complex. Draft a simple template. It is better than nothing. Of course, we do recommend that you pay your lawyer to draft a contract that will give you more protection, but something is better than nothing.

Too busy to commit your credit terms to writing? Make the time. It is simply not worth the risk.

Do-It-Yourself Debt Collection: A Small Business Guide

Posted by Marilyn Miller on September 06, 2017  /   Posted in Uncategorized

Many small business owners spend a good deal of time trying to get the lowest rate from their collection agency. Others will do nothing to collect on their own, yet will be reluctant to send it for outside collection. Both approaches are short sighted, and could sabotage bad debt recovery efforts and be disastrous for cash flow.

bad_debt_collection_in-houseOne way to cut down on the cost of debt collection is to make a concerted effort to collect as much as you can in-house. Your goal should be to send fewer accounts to your collection agency or attorney. You can accomplish this by putting together a program to monitor your accounts receivable aging and by following the program faithfully.

Your first step is to establish a regular review of your accounts receivables. You or someone you designate should be assigned with this task, and it must be a priority. This first step will drive the whole process.

Next, establish a procedure for following up on delinquent accounts. We suggest the following:

1.       Compose 2 or three collection letters of increasing urgency. Note the word urgency – no anger or threatening. Be firm and specific.  Generally, you would send letters at 30, 60 and 90 days past due, but you can set the schedule that works for you.

2.       Calls to follow up with selected customers.  Use someone with either a relation to the customer, or a position of authority to make the calls. Let delinquent customer know that the issue is being escalated in your organization.

3.       Decide how long you are willing to wait before getting outside help. You can use the same “drop dead” date for all delinquent customers or allow a little more time for long time customers. However, it is very important to stick to the timeline once you set it.

4.       Set your flowchart for the process. Communicate it to all in your organization. It is very important that you discontinue new sales to these customers at this time, or at very least make certain the files are marked so that any new sales requests become an opportunity to collect past due sums.

5.       Hire a collection agency or attorney. While you will cut down on the files you need to send them, you must be ready to move on and refer for outside collections when the time is right. Develop a checklist to make sure you give your agency all the information they need to do their job.

6.       Continuously monitor your results and adjust as necessary.

Remember the 3C’s –  Communication, Clarity, Commitment and Consistency:

·         Communicate your process within your organization. Make sure everyone understands their role in the process.

·         Be clear with customers about your payment expectation.

·         Commit to the process. Be flexible and adjust when you need to, but remember your goal is to get paid. No one likes confrontation and in some cases it is unavoidable, but confrontation can be minimized with the right approach, and in any case should not keep you from collecting what is due to you.

·         Consistency is likely the hardest of all, but the more you standardize the process, the easier it will become.

Hiring a Collection Agency? Some Do’s and Dont’s

Posted by Marilyn Miller on August 30, 2017  /   Posted in Uncategorized

bad_debt_collectionHiring a collection agency can be a great move to not only bring cash back into your company, but also to free up time you are spending chasing delinquent customers. Your choice of agency should be based on a number of factors. It is important to find an agency that works best for your business. To help with your search, here are some DO’s and DONT’s.

DO make certain your agency has the proper credentials. Check to make sure they are a valid business. If your customers are consumers, make sure the agency has the proper licensing and bond requirements. Some states require consumer collection licenses and surety bonds, while others do not. The Association of Collections and Credit Professionals (ACA International)  is a good place to look for guidance. There are various listings of various state requirements. Collection of commercial i.e., business to business) does not require a specific license, but again, make sure they are a real business in good standing.

DO interview several collection agencies in your area. Inquire about their experience in your field.  Ask them to explain their process and why they believe they would be the best choice for your business.

DO ask for several references and verify them.

DON’T select and agency solely on the basis of the lowest rate. Keep in mind the acronym, “TGTBT”, too good to be true, and what that usually means. Some agencies will sell a low per file fee or low contingency rate for which they will send one letter. If the first letter doesn’t work (which most do not), you will be asked to pay a much higher rate.

DON’T think that just because your collection agency charges you a contingency rate (nothing up front, with a percentage paid only on successful collections), that their services are free. Once you place a file for collection, get out of the way and let the agency do their job)

DON’T ever pay extra fees for research. Research (called “skiptracing” in the collection industry) is a critical part of the process and should be included in your contingency rate.

DO ask your collection agency what types of information they need from you. Also, after hiring a collection agency, pass on to them any new information you discover.

Hiring a collection agency should be done with the same care you would take hiring any vendor. Do it right and the results will follow.

Accounts Receivables Management for Small Business Managers

Posted by Marilyn Miller on August 28, 2017  /   Posted in Uncategorized

Accounts receivables management is an important function in a small business, but often gets pushed aside in favor of sales, customer service of general operations. When small business owners tell me they are too busy to manage their accounts receivables, I ask them if they would forego new business sales or customer service. Of course, the answer if always no. What good are new business sales if you are not being paid for them. In fact accounts receivables management, new sales and customer service are interrelated.

With a strong accounts receivables management program, you will be able to determine which customers deserve the most credit, and which customers you should limit. Your ability to provide credit in a smart, informed way will boost your sales.

Customer service can also be enhanced by offering customers who may be behind in payments a small discount, or by offering to roll in a new order at a discount if balance is paid in full.

Accounts receivables management for small business hinges on communication. So many bills go unpaid because they are sent to the wrong address, or to the wrong person in an organization. Speak to your customers regularly, and update their information with every contact. Determine each customer’s preferred method of communication: phone, text or email.

Regularly review the 30/60/90/90+ aging of your receivables weekly. Assign a staff member to follow up by phone to each delinquent customer. You will be amazed at how many people will pay after receiving a phone call, text or email from you.

Compose a collection letter to send to each late-paying customer.

Finally, set a limit as to how long you are willing to wait before you decide to hire a collection agency. After 90 days, if you have no contact, you have a problem and you need to bring in the experts. Waiting too long to collect your money could hurt you.

Accounts receivables management is not rocket science. All it takes is commitment and communication.

Credit Bureau Reporting: Changes are Coming. Are You Ready?

Posted by Marilyn Miller on August 25, 2017  /   Posted in Uncategorized

Credit bureau reporting is a good tool but only one of a number of tools for effective debt collection. I think some collection agencies use it in lieu of a consistent effort to reach consumers and work to get them into payment plans. Some creditors have too great an expectation of the effectiveness of credit bureau reporting. Creditors also do not understand the liability that could arise under the Fair Credit Reporting Act (FCRA) if debts are reporting inaccurately. My opinion has long been that the benefits of credit bureau reporting do not outweigh worth the risks involved.

The Consumer Financial Protection Bureau was established in 2012 and part of its mission was to protect consumers from inaccuracies in credit reporting. They have received over 185,000 thousand credit bureau reporting complaints as of February of this year. As a result, the new National Consumer Assistance Plan is an effort by the three major consumer credit bureau reporting agencies – Equifax, Transunion and Experian – to improve accuracy and transparency for consumers. Anyone who is a “data furnisher”, meaning your collection agency, or a creditor who reports debts directly will be subject to new requirements.  Some of the changes either already in effect or in the works are:

  • Medical debts cannot be reported until 180 days after the date of delinquency. The idea is to that many times, insurance claims are under appeal and take some time to get paid. The new delay hopes to avoid the reporting of debts that eventually get paid by insurance.
  • Debts that do not arise from a contract or agreement to pay such as parking or court fines can no longer be reported.
  • Full name, address, social security and date of birth will be required for all reported items.
  • The name of the original creditor, not simply the collection agency must be reported.

If you wish to continue (or have your collection agency) report debts to the bureaus, you must immediately being collecting key information such as social security and date of birth. A customer application and contract have always been important, but now are even more so.

 

 

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