Customer Bankruptcy: Does It Mean You Will Never Get Paid?

Posted by Marilyn Miller on October 23, 2017  /   Posted in Uncategorized

Bankruptcy protections were created to give people who have incurred debts greater than their assets or ability to pay. It is intended to make way for a “fresh” debt-free start. However, there is nothing more frustrating to a small business owner than having to walk away from money owed to them when a customer declares bankruptcy.bankruptcy

There are several different kinds of bankruptcy. Generally they fall into two categories – those that discharge, or eliminate debts and those that restructure, or set up payment plans. There are also different types for individuals vs. business.

Once you are made aware that a customer (whether a company or an individual consumer) has filed for bankruptcy, you must notcontact them directly as long as the case is active. If you have placed their file for collection agency, you must let them know immediately and they too, must cease contact directly with the debtor. No contact means no contact – no bills, no phone calls, no letters.  If the debtor is represented by an attorney, you may make contact with the attorney. You can also file a proof of claim with the court, and you will get notifications as the case progresses.

Your chances  of bad debt recovery depends on many factors, and there are some important things to keep in mind.

  1. If your customer is a business, do you have a personal guarantee, which means that the customer will personally guarantee debts of the company? If you do,  and the company declares bankruptcy, you may still have the right to pursue the personal guarantor.
  2. If you believe that there are assets that have not been disclosed, or believe for some reason that your debt should be exempted from discharge, you should attend the hearing, and you will have an opportunity to question the debtor.
  3. The debtor has responsibilities while in bankruptcy. If they do not perform their duties, their case may be dismissed. If so, you are free to pursue the debt again.
  4. If the debtor files a repayment plan for debts that is approved by the court, notify the court if the payments are not made according to the plan.
  5. If the debt is discharged, it means that the debt is wiped out, and you cannot recover it. Move on.

Things happen to people and businesses and you cannot foresee every situation, but if you are watching the aging of your receivables, look for signs of trouble and suspend credit, reach out to the debtor to see if you can work out a solution.

Accounts Receivables Management 101

Posted by Marilyn Miller on October 20, 2017  /   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.

Maine Collection Agencies: Can They Collect Finance Charges?

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

Using a Maine collection agency help small business owners with bad debt recovery, but they collect finance charges? It depends on you, for several reasons.

First, do you have a contract signed by your customer that states that interest will accrue on delinquent balances? The contract needs to detail when interest will begin to accrue, how it will accrue and confirm that interest rate that will apply. For example: “Finance charge of 1.5% per month will be accrue on all balances over 30 days past due”.

If you do not have a contract you CANNOT charge interest, and your collection agency cannot collect it. It is not enough to put your interest rate on your invoice. You must have it agreed to, in advance, by your customer. As I have stated before, even a simple informal email confirming key details can serve as a contract, IF the customer acknowledges and agrees to it.

Secondly, the type of transaction matters. If your customer is a business, you still need a contract, but you can add interest within reason to all transactions. If your customer is a consumer, you are governed by Title 9-A, the Maine Consumer Credit Code.

Maine law limits the amount of interest you can charge, depending on size of the debt, specifically:

The finance charge, calculated according to the actuarial method, may not exceed the equivalent of the greater of either of the following:

A. The total of:

(i) 30% per year on that part of the unpaid balances of the amount financed that is $1,000 or less;

(ii) 21% per year on that part of the unpaid balances of the amount financed that is more than $1,000 but does not exceed $2,800; and

(iii) 15% per year on that part of the unpaid balances of the amount financed that is more than $2,800; or [1997, c. 727, Pt. B, §3 (AMD).]

B. 18% per year on the unpaid balances of the amount financed.

Generally, 18% a year (1.5% a month) is the most acceptable and commonly used rate.

If you decide to take your case to Maine Small Claims Court, do not assume that you will be awarded interest with your judgment. You must ask the court to award you the prejudgment interest. If your debt plus accrued pre-judgment interest totals more than the Small Claims limit of $6,000, you will only be awarded that amount. And, the Court will have final say on the awarding of interest.

If you do not have a contract, ask the Court to at least award you pre-judgment interest. With a contract, you can accrue the greater of your contract amount or a formula  set by the state which is the one year US Treasury bill rate plus 6%. If you do not have a contract, you can still get post-post judgment interest, but will be bound by the formula, which is normally less than a contracted amount.

A Maine collection agency can collect any interest that is legally due or that has been awarded to you. It is very important that you communicate all information regarding this topic so that your agency can get the very best result for you.

Maine Collection Agency: How Can They Help Your Business?

Posted by Marilyn Miller on October 16, 2017  /   Posted in Uncategorized

This post is not about the Fair Debt Collection Practices Act and the rights of consumers to be protected from abusive debt collection practices. Certainly, a debt collection agency must be in compliance with the law, but there have been many articles written on that subject. So, if you are reading this article looking for information on how to stop collection calls, stop reading now.

However, if you are a small Maine business owner or entrepreneur and you are not getting paid by customers, and want to hire a collection agency, this post will help you get a realistic idea of what you should and should not expect.



Here are some things your Maine collection agency  can (and should) do for you:

Help locate customers who have moved – A big part of debt collection is finding debtors and their assets. You should never pay an additional fee for research as it is an integral part of the collection process.

Give you ideas on how to improve your credit practices – The best collection is the one you can make in house without having to send to a third party.

Save your time and let you focus on your business while they focus on getting you paid – Certainly you should make an effort to recover money, but after a while it simply does not make sense to use productive time chasing bad debt. Also, debt collection agencies have special tools and training.

Advise you on information needed to assist with the collection and maximize results – Ask your collection agency to advise you on the process, and ask them to tell you what information they will need to get the job done.

Here are some things your collection agency cannot (and should not do):

Change the financial situation of your customers – If someone is in a cash crunch, you may not be able to get all your money at once, and you should be realistic and flexible with your agency if they ask you to accept small payments or a settlement. A good debt collector is a skilled negotiator, and they will work hard to get you paid, but you may have to be patient and be paid over time. Remember that most agencies are paid on a contingencybasis, which means they only get paid when they get results for you. So, if they ask you to take a settlement or payment plan, it is because their experience tells them it is best option.

Ruin someone’s credit – We get it. It makes you angry when you do not get paid. However, credit reporting is only one tool and recent changes in the law lessen the impact of single item anyway. So,  one item reported to the credit bureau will not ruin anything. Focus not on being angry but on the goal of getting paid.

Charge fees that are not in your contract or prohibited by law – If you want to recover collection costs or charge interest on past due accounts, you must have a customer contract that allows it. In addition, you must be in compliance with state laws. Some states allow recovery of all or part of your collection fees, others do not.  Certain rates of interest are considered by law usurious, or excessive. A good customer contract will be your best friend. Contact your attorney today to get one.

Collect debts that are legally uncollectible – Each state has a time limit, or statute of limitations that governs how long a debt someone can be held liable for the debt. Also it is illegal to collect a debt that is under the protection of the bankruptcy court. So, do not wait to long to send accounts off for collection!

Collect debts from parties that are not liable for them – Once again, the need for a customer contract is important.  When you are providing product or service to a business, especially a new business, you should ask for a personal guarantee. A personal guarantee means that a business owner takes personal responsibility for debt of their company if they go out of business.

Similarly you cannot hold heirs responsible for a debt of a deceased relative. However, if there is an estate with assets you can make a claim against the estate in an attempt to recover.

In the end, it comes down to communication with your Maine collection agency. Use your agency not simply as a commodity but as a trusted partner. It is perfectly fine to have high expectations, but your expectations must also be realistic.

Small Business Cash Flow: Simple Steps

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

Small business cash flow is a challenge for any business but for a small business where the owner, and most of the staff often wearing two – or more – hats, it can be downright elusive. Your business plan likely involves details on how to grow your sales and manage your day-to-day operations, but have you focused on ways to keep an even stream of revenue coming? If not, you must, and now.

Here are some simple steps you can take today to improve your small business cash flow:

Billing – Your bills must be clear and concise. They must be accurate. They must be sent promptly and regularly. Make certain you have the right contact for billing since the person who hires you may not be the person in charge of accounts payable. Ask customers how they would like to receive bills – paper or electronic. Billing may seem like a simple issue, but so many small businesses owners get it wrong.

Credit – Offering credit terms can give your business a competitive edge. However, not every customer deserves credit from you, and not all customers should have the same credit limit or terms. Establish guidelines that work for your business and your customers. If you need an idea about how to do this, think about how your bank treats you when you go for a personal of business loan. They collect information from you, examine it, and make an informed decision.

Deposits – Obtaining some money at the start of a project is a smart idea that can not only give you some cash flow, but with some “skin in the game”, your customer becomes part of the procedure. Any customer who enters a payment plan should be required to provide an initial deposit. Document all payment plans and make sure customer approves of them.

Payment Plans and Methods – Make it easy for customers to pay you – whatever it takes. Well documented payment plans are a good start. Experiment with different methods of payment that work with your customer base. Some customers still pay bills with a paper check, and sending them an envelope every month will keep them on track. Other customers want to pay online, with PayPal, ApplePay or another method of payment. Know your customers and work with them to keep payments regular.

Receivables Management – Do you know how much money you have outstanding at any given time? It is important to have a handle on your outstanding accounts receivables. Stay on top of them, and plan to recover any delinquencies.

Small business cash flow need not be a mystery. It is all up to you, and the steps you take to get there.

HIPAA: Is Your Collection Agency Compliant?

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

HIPAA or the Health Information Portability and Accountability Act was passed in 1996 to protect consumer medical information. By now, healthcare providers of all types have figured out how to be compliant with the law. However, medical and dental providers need to make sure that their collection agency is also HIPAA compliant.

Speak to your collection agency and ask them about their experience with medical/dental debt collection. If you decide to hire them, you must have them sign a HIPAA Business Associate Agreement. The agreement asks your collection agency to comply with the law to keep information secure and not to disclose Protected Health Information (PHI).

While your debt collector does have a permissible service to get certain information, I recommend only sharing information that is needed to discuss the debt. Your agency will need a statement showing dates of services, charges with any payments and adjustments. When you share patient information with them, they need contact information on your patient, not their medical history. If you do not think the information is important in collecting the debt, do not send it to your agency.

Does your collection agency know what Protected Health Information is? Do they train their employees on how to comply with HIPAA?

Make certain your collection agency has the appropriate security to protect information. Are they keeping records, either paper or electronic of patient statements? If so, make sure they are secured.

Your patient financial agreement should state that past due balances may be referred for outside collection, and that they understand and agree that information necessary to collect the past due balance will be forwarded to the debt collector.

When you communicate to your agency regarding patients use secure email or fax only. Regular unsecured email is not HIPAA-compliant.

In addition to HIPAA, your agency should have a policy to comply with laws that govern overall debt collection tactics, the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA).  

Most importantly, clearly communicate with your agency about your goals and about the approach you wish them to take with your patients. Work with them to give the information they need to help you, while protecting the privacy of your patients.


Collection Agency or Attorney: You Might Be Getting it Wrong

Posted by Marilyn Miller on October 09, 2017  /   Posted in Uncategorized

I have written about the difference between hiring a collection agency or attorney before, and yet I continue to receive inquiries about it. There is no cut and dry answer to this question, but there are certainly examples of what happens when a debt collection file is sent to the wrong party.

In any business relationship, your first consideration has to be hiring the party you believe is best equipped to do the job. You should ask colleagues, friendly competitors, and check references before you hire any business partner, but make your decision based on facts, not emotion.

For example, do not hire a collection agency simply to “ruin” a delinquent customers credit by reporting that debt to a credit bureau. First, collection agencies work on a contingency rate basis, so they are not going to get paid unless they get you paid. They are not paid to settle your vendettas or help you extract revenge. It is not personal, or never should be. Your goal in hiring a collection should be simple:  getting paid.

Last year, I received a $ 1,100 file from a small business owner that had previously been placed with an attorney. The attorney was a very good generalist who had not had experience with collecting bad debt. He charged the business owner an hourly rate to review the file and send a demand letter. The attorney did not collect any money and presented a bill for $350.00. He told the business owner that the debt was uncollectible, and that his best bet was to send the file to a collection agency to, “at least get even” by asking the collection agency to report the debt.

What’s wrong with this idea? Tons. First, this particular debt was a commercial debt owed by a business, and without a personal guarantee, the business owner could not be held personally liable, and the debt could not be reported against his personal file.

Secondly, at the time of default, the business owner had the opportunity to file a mechanics lien, which is a time limited option to secure payment of the debt. By the time we received the file, it was too late to file the lien.

We did successfully recover some money for this client, but his cost of collection was much higher because he started off in the wrong place.

Similarly, we received a call to collect several small claims judgments that had been obtained by an attorney on behalf of a small business. The attorney charged a fee to obtain the judgment but once the judgments were obtained, told the business owner that he would have to hire a collection agency to collect the money. Insult to injury!

In both cases, I asked the customer why they had not selected a collection agency first. Both told me that they had, “heard a lot of bad things about collection agencies” and that their attorneys had told them that all collection agencies do was to send “toothless” letters and report to credit bureaus. That may or may not be true for some agencies, but it is certainly not the norm.

Ask questions. Focus on your goals. Keep your eyes on the prize – recovering as much money as possible.

Bad Debt Collection: Is My Account Too Small?

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

So often in the management of receivables I am asked the question, is there an amount that is too small?  It almost begs the question that if it is too small, it must be abandoned.  From that standpoint, no amount is too small, but the issue is a larger one.  Let’s say you are a physicians practice.  You have insurance reimbursement and a great deal of co-pays, co-insurance type of accounts, that are less than $100.00 each.  This is the nature of the practice.  You accept insurance, you accept the adjustment required by the carrier and are advised that the insured (your patient) has a portion that must be paid.  There are times when all this can be done in advance, but the usual practice is to bill in arrears.  So now we have many small files.

My initial reaction to small files is “I don’t have time to do this kind of work.  Delegate the small files to another.”  Well in my practice, I don’t have another.  And if we are looking at the puzzle from an Accounts Receivable standpoint, inside the practice, the “co-payment” as advised is an essential element to profitability.  There are a great number of practices that will not accept Medicare or Medicaid.  “Can’t make any money.  The reimbursements are too small.”  So, the co-payment could be the difference between profit and loss, and no business, Doctor, Lawyer or Indian Chief can lose money.  At least not on purpose.

We then are fixed with a problem.  We have 100 files that are less than $100.00 each.  Well, the total of that pile is $10,000.00.  I do not know about you, but $10,000.00 is a lot of money, so figuring out how to get it is critical.  Call them.  One by one.  Call them.  Yes, it takes time.  And yes, I would rather work on ten $1,000.00 files.  If I had my choice, I would always choose the latter.

Let’s say I have a choice.  My answer is “all the files”, and the reason is the entirety of the aging (the list of who owes what to whom by date) is the measurement of the specific practice.  In this case, management of all those co-payments.  Profitability comes to mind first.  Second, and far more important is the impact on the community as a whole.  A practice as described in a geographical impact on a radius surrounding the practice.  In other words, people move away and change doctors.  People do not travel very far, especially when they age.  To disconnect from the small, under $100.00 files would send a message to the community.  “They don’t collect on the co-pays.”  That spells “don’t pay unless we have to.”

Now I am not suggesting that everyone falls in to this category.  The ones that don’t have already paid.  We are talking about over 90 days.  If someone has not paid you in 90 days, they won’t.  Probably because you have sent them some sort of signal that they don’t have to.  Make an appointment for a patient that owes a prior co-pay?

You decide how important $10,000.00 is to you.

Collection Agency or Attorney: How to Choose the Best Option

Posted by Marilyn Miller on October 02, 2017  /   Posted in Uncategorized

I am often asked to comment on which option – a collection agency or attorney is best for collecting bad debt. The simple truth is that one size does not fit all. Each option has its benefits and the best option has to be based on your specific collection needs:

Size and number of files – Attorneys generally litigate. If you have a large number of files of varying amounts, litigation will not always make sense. A collection agency is equipped to reach debtors by both mail and telephonic contact. A law firm may want to work only on the larger files, or will send only one demand to files under, say $1,000.  A collection agency certainly can handle larger files, depending on the nature of the file.

Location – If your customers are in various states, an attorney may be unable or unwilling to help you, or you may have to retain different lawyers for different locations. Many collection agencies are multi-state, and some are national in scope.

Rate basis and out-of-pocket costs –  Whether you choose a collection agency or attorney, always ask for a contingency rate versus flat or hourly. A contingent rate means that you will not pay anything up front, and receive a percentage of sums collected.  Also, ask for an estimate of out of pocket costs. What is included in your rate and what is extra?  If your attorney is going to litigate, you will likely have to front the costs and get them reimbursed when the money is collected. Court costs vary, but they can cost you hundreds of dollars, which brings up the next factor – actual collection of the funds.

Post Judgment Collection – If you hire an attorney and are awarded a judgment, the court does not collect the money for you. Getting a judgment is one thing – getting paid is another. In some states up to 80% of judgments go unpaid. I have been asked many times to collect judgments obtained by attorneys. Make sure collection agency or attorney has the experience and is willing to pursue post-judgment collection.

Research Capability – Over half of the delinquent customer files need some sort of research to locate debtors or their assets. You make sure the collection partner you choose has the experience and tools for quality research. Also, you should never pay an additional fee for research.

Credit Reporting – Reporting debts to credit bureaus is often cited as the key benefit of hiring a collection agency. I disagree. First of all, credit bureau reporting laws have been changed to limit the types of files that can be reported by requiring information you may or may not have on the customers, such as date of birth or social security number. Also, the credit agencies have limited the impact of some types of debt to the credit score, making credit reporting have much less impact. Lastly, reporting a debt may make you feel good, but it will not in many cases get you paid. The key benefit of using a collection agency should be their ability to focus on your files, and make a consistent and prolonged effort to get recover for you.

Focus and Experience – Make sure the collection agency or attorney has experience collecting for your type of business. Use a collection agency or attorneys who specialize in debt collection. The attorney who did a great job on your will may not be the best choice. Also, whoever you choose has to be versed in the various collection and credit reporting laws such as the FDCPA and FCRA.

The best option is to find a collection agency that has relationships with attorneys. If the collection agency cannot collect the debt, they can research the file to see if litigation makes sense. They can also assist the attorney with post judgment collection. Therefore if you are hiring a collection agency, make sure they attorney relationships and get the best of both worlds!



Customer Credit: Know Your Customers and How they Pay

Posted by Marilyn Miller on September 29, 2017  /   Posted in Uncategorized

ustomer credit is a great way to increase sales. If you are smart about how you grant your customers credit, you will be ahead of your competition. However, if you do not have a plan or if you have a plan and do not follow it diligently, your cash flow will suffer.

customer_credit_PayFirst and foremost, you need acontract with your customers. Even an informal agreement such as an email with customer agreeing to your payment terms is better than nothing. If your customer is a business, apersonal guarantee is important.

So how do you decide how to grant credit: to whom, how much, and for how long. To do so, it is important to understand your customers, and how they pay. Our experience has shown us that there are 5 kinds of “payers”:

Prompt and Regular – You never worry about payments. They pay on time. They deserve the most credit at the best terms.

Slow but Steady – Usually long term customers who you count on for regular orders who have always paid, just slowly. They are usually 30-60 days behind, but are a good source of business. Grant them credit, but watch your outstanding balance. Set a maximum outstanding balance. Offer discounts for prompt payments. If they go beyond 90 days, get on the phone and speak to them.

First Round Collection – These customers, when sent to a collection agency or attorney, pay voluntarily. They want to get back into your good graces. They need your product or service. Customers with seasonal needs often fall into this category. A fuel oil dealer client of ours saw a big rush of payments after the first frost. Require these clients clear up any old balance before you extend any more credit.  After payment, require a deposit or convert them to a cash basis.

Legal Collections – These collection clients will not pay without a legal action. Some will pay when they are sued. For other customers, you will have to obtain a court judgment against them, and then perhaps they will get religion and pay. For still others, you may have to resort to property liens, wage garnishments or other extreme measures. It should go without saying, but these customers should not only not have any credit with you, but should not be customers at all.

Never Going to Pay – Customers who go out of business, have no assets to attach, or who file bankruptcy are almost always a lost cause. Look to see if there is any possibility to recover, but be prepared to walk away.

Customers may move from one group to another, and hopefully you are watching the aging of your receivables and will take the appropriate actions.

Customer credit is a privilege, not a right. Watch your customers, how they pay (or don’t pay), and cash flow will take care of itself.

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