InsideArm recently took an in depth look at the relationship between collection agencies and the Better Business Bureau. What they found was that many agencies use the BBB as a marketing and defense tool. While maintaining a relationship with the BBB may require dedication to responding to angry debtors, it can also show clients that an agency is dedicated to customer service.
The age of an account can have a great affect on it’s collectability. In most circumstances, the older an account is the more difficult it is to collect.
As time goes on it can become more difficult to locate a debtor. People move to new homes, new towns, new states. They change phone numbers and jobs. They may do this several times over the course of a few years. Each change can make locating a debtor more difficult. If you can’t find them, you can’t get payment from them.
The collectability of an account goes down as the account nears the statute of limitations. The statute of limitations on an account is the number of years you have to pursue an account from the last date of charge or payment (whichever is most recent). For example, the statute of limitations in the State of California is 4 years for a written contract. You would have 4 years from the last date of payment or the last charge to take that account to court. Each state decides the statutes of limitations for different types of accounts – open accounts, judgments, oral contracts,etc.
The faster you can move forward on an outstanding account,the more likely you are to receive the payment due to you. This is truly a situation where time is money and the more time you let pass the greater the chance you’re letting your money slip away.
When managing past-due consumer collection accounts, it is important to understand the reason for non-payment. Knowing why a customer cannot or will not pay can help you determine the next, most effective action and increase your odds of collecting the past due amount.
The first step is identifying what type of customer you are working with. There are four types:
Willing and Able – This person is your ideal customer. They have the resources to pay their outstanding invoices and are willing to pay. This person usually finds him or herself in debt because of some error. For instance, maybe the invoice was lost in the mail.
Unwilling but Able – This customer has the resources to pay, but refuses. Maybe he or she has some dispute regarding the balance owed or was unhappy with the product or service. In this case, finding a solution to the dispute is often possible and will lead to payment.
Willing but Unable – This person wants to pay, but cannot for financial reasons. They acknowledge the bill and may have even made some effort to pay, but cannot take care of the whole balance. Working out a payment plan is usually the most helpful option for this customer.
Unwilling and Unable – This customer is often the most difficult to work with. He or she refuses to pay and can’t afford to do so anyway. Diffusing the dispute and attempting to set up a payment plan are the best courses of action with this customer.
Identifying the type of customer you’re working with is a valuable first step in the collection process. Once you know your customer’s needs you can work with him or her towards a resolution.
An internet search of consumer debt will bring up hundreds of articles, blogs, and websites dedicated to collection of consumer debt and consumer protection. A search for commercial debt does not yield the same variety or volume of results. Commercial debt is often not addressed because there are not as many laws regulating it and businesses are often left to fend for themselves. When a company’s commercial customers stop paying their debts the company can experience many problems, including not being able to pay their own bills.
Getting commercial accounts paid can require a different approach than consumer accounts. Businesses generally require written notice of debt, often including an itemized invoice so just making phone calls usually will not suffice. Finding the right person is also key. Sometimes contacting the person you did business with in the company isn’t the way to go unless that person happens to be the accountant. You should try to find the accounting department or accountant, because that’s the person who pays the bills. Be prepared to fight for your invoice as some companies will debate what’s owed. Unfortunately, effecting a company’s credit report isn’t always as useful as a consumer’s credit report. Bringing in a collection agency can often yield results if they have experience with commercial collections. Companies will often take a collection agency seriously, because they see that you are serious and that there are consequences for not paying.
Trying to get payments out of customers can be difficult and awkward. You’ve already provided services and now you’re waiting for payment. A soft approach is often ideal for maintaining a customer relationship, however sometimes it doesn’t work. You’re left with unpaid invoices and looming bills of your own. So, how can you get those invoices paid?
It is important to recognize that the longer a debt sits, the harder it becomes to collect. A proactive approach is always best. You have to decide what level of escalation you feel comfortable with and how badly you need payment, then decide the best course of action. Sending monthly statements and circling unpaid invoices can help draw attention to unpaid debt, which is helpful if you’re dealing with a customer that is a little lax on accounting procedures. Making phone calls directly to the individual or accounts payable department can make the issue a priority for your customer, rather than something that sits on the back-burner. Occasionally, you have to show a customer that you’re serious. This could mean sending the account to a collection agency. Customers often take demands for payment more seriously when they come from a collection agency. Suddenly, they become aware that there may be consequences for lack of payment. Regardless of the method you choose for collecting past due accounts, always be sure your own accounting records are accurate. It is the best way to avoid disputes regarding amounts owed or misapplied payments.
According to the New York Daily News, student loan debt in the United States has reached the $100 billion mark. As an education becomes imperative for individuals seeking immunity from a bad economy, collection of student loans and outstanding tuition becomes a major market. However, unlike credit card companies collecting past due accounts, universities and colleges collecting on unpaid loans and tuition have strict guidelines for collector’s practices. Academic institutions have their valuable reputations to uphold and overly aggressive collectors can tarnish those reputations. That’s why so many of these institutions are seeking collection agencies that are participating in the new wave of collection practices. It’s a gentler approach more akin to credit counseling than the harsh (and sometimes scary) collection style of the past. And it’s more important than ever for agencies to take this approach since the FTC is cracking down on agencies, even agencies with government contracts. Where regulatory compliance was once a selling point, now it’s the bare minimum. Agencies must strive to retain customer relationships, uphold client reputations, and still manage to get paid.
A few more good articles on collecting debt in China. It looks like debt collection issues between the US and China is now a two way street.
Climbing mountains to collect debt
(from the China Daily News)
While US exporters in the manufacturing, technology, transportation, shipping and rail industries suffer the brunt of increases in debts, claims made on individual Chinese consumers – mainly students and tourists who have gone back to China – are also on the rise.
Chinese producers face record number of debt defaulters abroad
(from the China Daily News)
Chinese manufacturers are generating large volumes of goods for shipments abroad, but are also facing increasingly huge amounts of defaulted payments from foreign buyers.
Do you have your own stories about China. Let us know.
You can’t seem to turn around these days without hearing about China. Certainly much of the talk is justified. Growth rates are high and there is no ignoring the size of the populations.
Although the culture is much different than that of the U.S., people are people. And, where there are people there are hard-to-collect debts.
A few things about collecting debt in China:
- Actual collection within China must be done by a law firm.
- There are time-sensitive issues with debt collections, so don’t delay
- It’s best to have a partner local to the area.
Here are some good resources to help guide you in your debt collection efforts and doing business in China:
Proven Quality: When selecting a debt recovery agency, choosing an organization with experience and proven results is important. The services offered by the agency should be tailored to meet your company’s individual needs.
Expertise: Before selecting an agency, create a list of criteria that will fulfill the needs of your company. Adequately research the agency, request client testimonials and discuss your needs with an agency representative. Understanding the expertise offered by the agency will help as you make an informed decision.
Global Agency: When considering international debt recovery, select an organization that offers direct access to your international-based debtors. The agency should have the ability to offer debt collection specialists in close proximity to the country your debtor is currently residing. Selecting a company with this type of expertise, offers a specialist working on your behalf that understands the culture, customs, language and laws of the country.
Debt Recovery Litigation: Sometimes litigation becomes the only available course of action, therefore it is important to consider a company that has the ability to facilitate a fast and cost effective course of action. Because the laws vary in every country, it’s important to employ a company that has a strong understanding of the local laws for the country your debtor is residing. Doing this research ahead of time, will offer you an advantage if litigation becomes a necessary part of the debt recovery process.
Sponsored by debt recovery and collection agencies, this blog was created to assist credit and collection managers, accounting executives and others interested in updated news relating to domestic and international debt recovery.