Credit Bureau Reporting: Good Tool for Debt Collection?

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

Credit bureau reporting is certainly a tool for debt collection. However, I contend that it is an overused tool, and is not nearly as effective as many believe it to be.

Credit bureau reporting should never be used as a way to “get back” at consumers who have not paid you. It is a waste of time and energy to use credit bureau reporting as a punitive tool. While a small number of people do pay their bills at some point to clear their credit, relying on credit bureau reporting as your “best tool” is a big mistake.

The Fair Credit Reporting Act (FCRA) was established in 1970 to protect the privacy and accuracy of individual credit files. It is a very good law that provides consumers with several protections. However, the law presents some opportunity for liability on the part of people who report to credit bureaus, called furnishers – inaccurate reporting, or for failing to respond to a dispute or request for removal. The law requires furnishers to make a “reasonable effort” to investigate and correct or remove an item, but gives no guidance as to what sort of effort is reasonable. Similarly, it is not entirely clear who would liable as the furnisher – the reporting agency, the original creditor, or both.

FCRA lawsuits are rising and the trend is expected to continue. If you do not think that you could ever report a debt incorrectly, think again. There are many people with common names, and similar addresses and it is very easy to make a mistake.

It is also important to make sure that credit reporting is not overused or too heavily relied upon as a collection tool. If an agency tells you, “we report all debts to the credit bureaus in 60 days”, you should ask them which other ongoing efforts they will make. Persistence is key in collecting debt, and an agency that is simply going to slap it on a credit report after 60 days and do nothing more may not be working in your best interest.

So, before you attempt to navigate these murky waters, ask yourself these simple questions:

· What am I trying to accomplish by credit reporting?

· Do any benefits outweigh the risk?

· Is your collection agency actively working the file or simply parking an item on a credit report and hoping for the best?

· Are you certain that any item being reported is accurate?

Simply stated, credit bureau reporting can be a valuable tool. It does not work in every situation, and is certainly the only thing you should do. In some cases, it can cause more harm than good. It should NEVER be used as a substitute for personal contact with your customers, and a continued effort to work out a reasonable repayment arrangement.

 

 

Hiring a Debt Collector: Five Perks for Your Business

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

Hiring a debt collector is a smart move for a small business. Certainly, having a relationship with a good small business debt collection agency will bring money back to your business and help you grow. There are, however, more benefits you can receive from hiring a collection agency.

Focus – As a small business owner, you are busy wearing many hats. It is very easy to lose focus on the money owed to you when you are working to gain new business and service your customers. A debt collection agency’s job is to focus, everyday, on your accounts receivables and on getting you paid.

Time – Collecting money takes time. All business owners need more time. Let a commercial debt collector help you so that you can spend your time growing your business.

Research – The internet, especially social media, provides a good deal of information on people. However, debt collection agencies have specialized tools and can take research to the next level. They specialize in finding people and their assets. The process is called skip tracing and it is critical to successful debt collection.

Conflict Resolution – Customer disputes can be a big distraction. When you outsource your debt collection, you get yourself out of the middle. The best debt collector will help separate valid disputes from bogus ones, and get you involved as needed.

Advice – When looking for the best debt collection agency for your business, find an agency that can assist you with improving your credit practices. Look at your business debt collector as your consultant or coach when it comes to your day to day credit interactions with customers. Your collection agency understands small business credit and can help you structure payment plans that give you a competitive advantage.

Hiring a debt collector can send a message to your customers that you are serious about getting paid. Time after time, we have seen delinquent customers sent to collections get serious, pay their bill, and become a customer again.

Hiring a debt collector is hiring a valued business partner. You must work along with them to get the best results. You will be happy you did.

 

 

Collection Agencies: What are the Real Costs to Your Business?

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

Collection agencies may not charge you anything up front, but they are not free. Generally, collection agency fees are a percentage of funds recovered. Rates vary, usually based on age or size of debt, or both.

Certainly, hiring a collection agency with a competitive rate is a good thing. However, the lowest rate means nothing if your agency does not perform for you. Small business owners often make the mistake of focusing solely on the rate and overlook some important other costs.

All too often, business owners wait too long to get collection agencies involved. It is a great idea to have procedures in place to manage your accounts receivables and follow up on late payments. However, if you have not received a response within 90 days to your collection letter and phone calls, get help! Waiting any longer makes no sense and could hurt you.

Here is an example. I received a phone call from a prospective client, a small subcontractor. A customer had refused to pay them for an invoice over $2,000 – a large hit to their cash flow.  I did not hear back on my proposal to them until 9 months later. At that point, the opportunity to file a mechanics lien, a powerful collection tool, had long passed. Delay had cost them.

Here is another example. This week, a business owner in California asked me to collect a $1,000 small claims judgment obtained in Connecticut. In discussing the case, I learned that the business owner, who wanted to save collection costs by filing the small claims herself, did not realize when filing the case that she would be expected to come to a court for a hearing. She spent a considerable sum in airfare and hotel to come east for the hearing and the defendant did not show. So while she was granted a default judgment, she now has to collect it. She has nearly $750 of costs and has not recovered a cent. Her plan to save money on a collection fee backfired.

Another hidden cost of debt collection is the cost of time spent by staff pursuing delinquent clients that could be spent selling new customers or focusing on other business activities. Time is money and the cost of hiring a collection agency pales in comparison to the cost of your time.

Some business owners would rather borrow money than collect their accounts receivables. Other small business owners are in a cash crunch because they are not being paid, and pay finance charges to their creditors because they do not have the cash flow to pay on time.

Again, collection agencies are not free. They are however, far more reasonable that you would think, and certainly worth it for their ability to improve your cash flow and save you time.

 

Collection Agencies: You Hate Them Until You Need Them

Posted by Marilyn Miller on August 14, 2017  /   Posted in Uncategorized

Google “collection agency”. You will see a ton of articles about what to do if you are contacted (“harassed”) by a collection agency, as well as advertisements from attorneys willing to prosecute your Fair Debt Collection Practices Act (FDCPA) claim against an agency.

Believe it or not, reputable collection agencies (and most are reputable) believe in the FDCPA and work hard to comply with the law. The advice I always give to small business owners looking to hire a collection agency is to ask about an FDCPA training program for their collectors – a must to make certain your customers will be treated with respect.

collection_agency_evilDon’t get me wrong, there are abuses. However, the debt collection industry is like any other, with good and bad players. The debt collection industry represents the largest source of complaints to the Consumer Financial Protection Bureau. However, there is some feeling that the methods of data collection used by CFPB might not accurately reflect consumer issues with debt collectors.

Of course, my industry may be unique in we are often resented by both our collection clients and the people who owe them money. Our clients see us as a necessary evil, and the resentment they feel about not being paid often transfers to the collection agency when they see a portion of their hard-earned money going to collection agency fees, truly adding insult in injury.

What are the other options?  Do it yourself? Sure, you should have a program in place to collect as much as you can in-house. A good consistent program will certainly cut down on the files you need to refer for outside collection. Hire an attorney? Yes, some cases can be settled by an attorney, but not all files are right for litigation, and there is are still costs associated?. Just ignore the delinquent accounts and take a tax write-off? Well, that rarely gives you much relief, if it helps at all.

Consider a recent study done by Fundbox that reported some $825 billion in unpaid invoices to small businesses in the US alone. The study conjectured that if all unpaid invoices were paid on time, small businesses across the country could hire 2.1 million new employees, thereby reducing unemployment by 27 percent – how is that for a jobs program?

Not getting paid by customers can also mean that you are unable to grow your business by physical expansion, purchase of equipment, sales and marketing. You may even have to raise your prices.

The collection industry’s trade Association, ACA International reported that in 2013, third party collection agencies returned nearly $50 billion to their customers.

Still hate us?

Getting Paid: If You Build It, They Will Come

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

Getting paid on time is every small business owner’s dream. However, many business owners  take for granted that their customers know how and when they want to be paid. Sometimes, they don’t. If you make communicate to your customers and make it easy for them to pay you on time, they will.

Remember the film Field of Dreams? The main character (an Iowa farmer portrayed by Kevin Costner)hears a voice in a cornfield one day. It says, “If you build it, they will come” Costner listens to the voice, mows down his crops and build a baseball diamond in the middle of nowhere. He builds it…and “they” come.

 

If you build system for getting paid on time, then “they” (paying customers) will come. I have been in the financial world for over 25 years, and I believe that most people want to pay what they owe. I also believe that the more effectively you communicate how and when you expect to be paid and make it easy for people to pay you, the more likely you are to be paid on time, most of the time.

I get my electric bill every month on the same day, by email. I can pay it with two mouse clicks. It is amazingly simple, and I pay it instantly every month.

reduce_bad_debt_payments

Your payment terms must be clearly communicated to customers before you do the work, and then reinforced when you bill them. Use a contract, even a simple one, to outline your payment terms. It is not enough simply to payment terms on your invoice afterwards. Customer must agree in writing beforehand.

Once you have a customer, how do you make it easy for people to pay you?

  • Follow up with your customer immediately after the job is finished. Make sure you have the right billing contact. Use the opportunity to thank them and ask that they are pleased with your service.
  • Your bills must be sent promptly and must be easy to understand. Sending them consistently on the same day every month should be your goal. Remember, you are trying to build good paying habits with your customer, so show them your good billing practices.
  • Require a deposit before you start a project. Customers with skin in the game are more likely to want to continue paying.
  • As your customers how they wish to receive their bills. These days many customers want to receive their bills by email.
  • Offer a discount for prompt payment. You will be surprised how many people will take advantage of your offer.
  • Accept credit and debits cards, ACH, PayPalApplePay and any other method of payment.
  • Consider a payment portal on your website. I have one, and its use increases every month.
  • Offer payment plans. Make sure to document them, with terms for repayment as well as the consequences if the payment plan is not followed.

Getting paid on time is not really hard. You can control it, and you should.

Enforcing Small Claims Judgments with Bank and Wage Garnishments

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

Enforcing small claims judgments by some means is necessary if you wish to be paid, since the Small Claims Court never collects money for you. Once in a while you will reach a settlement and get paid at the time of judgment, but more often than not, you will have to However, few people pay voluntarily. Some estimates are that two-thirds of small claims judgments go uncollected for a variety of reasons, but mostly because it becomes too expensive, too difficult or too time-consuming.

Many people will place a judgment lien against a piece of real estate, hoping to get paid when the owner sells or refinances. This approach can work, but could take a long time.

Enforcing small claims judgments with bank garnishments could get you paid sooner, but there you must learn how to navigate the system. Here are some general rules to remember:

For wage executions, you have to research to find a job. Most states have a way of post-judgment inquiry that may help determine where your debtor works. Each state is different, and the Small Claims Court clerk can help you learn the procedure. Just trying to find a job could mean more trips to court and more fees to the court.

Even if you do find a job, some states do not allow garnishment of self-employed or part-time workers. You will not be able to take a debtors’ entire paycheck, and each state has a formula to determine the allowable garnishment amount. You may find that there are already other creditors before you, which will delay your garnishment.

And finally, if you are lucky to find a job that you can get a decent garnishment, you have no guarantee that your debtor will not leave the job, which will mean you have to start the whole process again.

If you know where your debtor has a bank account, you can also attempt to garnish it. Once again, there are costs involved. You will may be limited in the amount of funds you will be able to take. Your debtor may claim (and win!) a hardship claim and retain their funds.

Certain bank accounts such as pension accounts, social security cannot be garnished.

So while enforcing small claims judgments using bank and wage garnishments may work for you, they do not work in every situation. You may want to consider hiring a collection agency skilled in post judgment collection to help you.

 

 

 

 

Collecting Small Claims Judgments with Real Estate Liens

Posted by Marilyn Miller on August 07, 2017  /   Posted in Uncategorized

Collecting small claims judgments with real estate liens can be a very effective way to secure your money owed to you. It is, however, not always the best way.

Judgment liens are different than mechanics liens used by contractors. When you take your case to small claims court and you are awarded a decision in your favor you obtain a judgment. Once you have it, you have the right to file that judgment against a piece of real estate owned by the defendant in the case.

The benefit of using a lien against real estate is the owner cannot sell or refinance the property without paying you. To use this valuable tool to best advantage, there are some things to remember.

First, how to know that there is equity in the house to cover the amount owed to you? A person who owes you money likely owes money to someone else too. Liens are paid in the order they are placed on real estate. Also, judgment liens come after past due taxes and mortgages. So if there is are tax liens, a large mortgage and several judgment liens before yours, there may be no money left to pay you.

It is possible to research how many liens are filed against a piece of property.  Land records are kept at the county or town level (depending on where you live). Some records are kept online, while others or not. If you are interested in doing this research, start by calling the clerk in the town where the property is located, and you should be able to figure out where to start.

Your next step would be to look up the current value of the home. Real estate appraisal sites like Vision or sales sites Zillow might work.

Compare the value of the current value of the home to the amount of liens against the home, and you will have a good idea whether or not there is enough equity to pay your lien.

The process of researching land records can be confusing and time confusing, and it may be better to get some professional help. There are many collection agencies or attorneys who are experienced in the process. If you hire a collection agency or attorney, make sure to instruct them not to file the lien if there appears to be enough equity to pay you when the time comes.

And on the issue of time – it may take years for someone to sell or refinance. Are you willing to wait? Is there a better way to get paid more quickly? Collecting small claims judgments using wage garnishments or bank executions may be quicker and make more sense.

 

Small Business Debt Collection is All About Communication

Posted by Marilyn Miller on August 04, 2017  /   Posted in Uncategorized

Small business debt collection cannot be accomplished without communication. Whether you are collecting the debt in-house or hire a collection agency, what you say and when you say it makes all the difference.

Now, communication should start from the very beginning of a relationship with a contract or at very least some documentation of the terms of the delivery of your product or service. Today though, we will focus on the role of communication in the recovery of past due balances.

The novel Code Name: William Tell by Colonel Don Wilson describes a fictional president who comes to a peaceful solution to a national crisis by letting his mind expand to consider all possibilities. His character muses, “there is no last word in diplomacy”.

Diplomacy – in the form of clear communication- is the essence of collection.  Not threatening, but communication, talking, diplomacy.  Your problem is that the individual or business is not paying, and probably not talking either.  The initial step is not to threaten, but to open a hailing frequency, find out what the problem is.

With commercial small business debt collection you would be surprised how many times the reason for nonpayment is simply  that the invoices were not in the right department.  Are you in contact with the person who approves and pays bills? If not, get to that person, and getting paid is much easier.

With consumer debt collection, lack of communication is also often a factor in why bills do not get paid. Are your invoices clear and do they detail all your payments and charges. With medical and dental debt collection, it is often a matter of helping patients understand how their insurance policy works.

The most important aspect of credit management is communicating with the people who owe you money.  An initial phone call should follow an invoice after a completed job.  The communication link between you and the account starts on a positive note from the outset.  You can update contact information. The call will not only help with payment but also address any issues that could be obstacles to payment. For example, a client of ours, a well water treatment contractor, recently phoned a customer about a past due bill for a water sampling. The customer explained that she had not received the results of the test (an oversight by company) and when provided with the results, instantly provided payment.

Continue conversations with your customers, making sure your invoices have the terms clearly printed on them, and advise your customers how and when you expect to get paid.  Remember, a customer still wants something from you.  They want to use the credit you extend because it is good for their finances.  You as the creditor then assume the responsibility of its management.  Credit will not manage itself.

People respond to people.   There is a reason they aren’t paying.  The only way to find out is to pick up the phone and ask.

There are times when you cannot communicate with someone, because they stop responding to you, and you will need to outsource to your collection agency. But the more you make your small business debt collection about communication, the less likely it will be that you have to pay your collection agency to recover for you.

Maine Small Claims Court Judgments: How to Turn Them to Cash

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

Maine Small Claims Court Judgments are the result of filing a claim with the Small Claims Court in your area and having a judge in that court decide in your favor. Once you have a judgment, you have the right to attach certain assets, but you must do so lawfully.

Maine Small Claims Court (and the small claims courts in all states) are set up as a way for business owners to take their own cases to court. Claims are limited to $6,000 and below. You are not precluded from using an attorney, but you are also not required to use one.  While the Court provides guidance on procedures, you should carefully select which files to litigate. Your decision should never be based on emotion. Small Claims Court is not a good way to take revenge on someone who has not paid you. Your only goal should be to obtain a judgment you can use to get the money owed you.

Remember, the Court does not collect the money for you. You must collect Maine Small Claims Court judgments yourself. Hopefully, you have done your homework and sued customers with assets to attach. A judgment you cannot turn into cash is worthless.

So how to do it?

Real Estate Lien – A judgment gives you the right to lien a piece of real estate. Your lien is filed in the county where the real estate is located. Generally, your debtor cannot sell or refinance their property without paying you first. However, are you sure there is equity? If there are other liens or a foreclosure pending, there may not be enough money to pay you.

Wage or Bank Executions – Before you can garnish wages or a bank account,  Maine requires that you conduct a disclosure hearing, which is a way to bring your debtor to court to ask them questions about their assets. The process can become expensive and time-consuming, but can also be a good way to bring your customer to the table. Once you have held the hearing and determined assets (job, bank accounts), you have the right to attach them, but again, the time and expense may be considerable.

UCC Liens – The Uniform Commercial Code   is a set of Federal laws that govern commercial transactions. You can use a UCC lien to attach inventory or other real property.  Maine UCC filings can be made online, and are relatively simple to do, but t is a good idea to check to see which other liens exist before you place your lien.

In future blogs, we will take a look at each of these options, their advantages and disadvantages in collecting Maine Small Claims Court judgments.  It just may be that the best way to turn your judgment over to a collection agency that has experience in collecting judgments, and pay them to get your money.

 

Customer Credit: Weathering the Storm of Recession

Posted by Marilyn Miller on July 31, 2017  /   Posted in Uncategorized

Customer credit during a recession is tricky. Continuing to give customer credit will give you a competitive advantage and hope grow your sales, but you must be careful.

My 93-year old father is a WWII navy veteran. He describes the scariest moment in his life as the time his ship was tossed in a typhoon at sea. In the South Pacific, typhoons are sudden, fierce and dangerous. Sailors are taught that if they are caught in a storm and have no other choice, they must employ “steering way”, meaning they must ride straight through but with enough power to keep from being tossed by the waves. The idea is to keep a strong and steady pace into the wind, and avoid being broadsided.

Many economists believe a recession is imminent. It is not a matter of if, but only a matter of when, actually. Are you prepared to continue extending customer credit in a recession?

Granting customer credit is exactly like riding out a storm at sea. If you are going to do it, you have to plan for it.

First, know how your customers pay. Not all customers deserve credit but many will. Some of your best paying customers might find many of their credit lines constricted. If a customer has a good payment history with you, take a leap of faith with them and continue to extend credit. For customers that pay a little more slowly, consider a payment plan with an upfront deposit.

Of course, as you navigate your way through customer credit in a tough economy, you must continuously monitor the situation. Stay on top of your receivables. If a customer goes past due, get on top of the situation immediately. Reach out to the customer and see what is going on. Suspend new orders, if necessary. If you do not receive a reply, hire a collection agency to help recover your money.

Have a plan, stay the course and full speed ahead!

 

 

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