Solving Your Collection Problems
January 2010 - By John Zielisnki
There is no question that the economy is in a recession. In this current economic environment, your business has undoubtedly experienced difficulty in the maintenance of regular accounts receivable collections.
How should your business react to customers' increasing inability to pay delinquent accounts? Rather than writing off the debt or beating your head against the proverbial wall, consider bringing in a third-party collector. Collectors specialize in collecting past due accounts owed to others. While collectors are traditionally referred to as collection agencies, the term can include law firms. With law firms being added to the picture, you now have a broader choice when selecting a third-party collector for your business.
Choosing a Law Firm or Agency
Choosing a collector requires careful consideration. In determining the best course to pursue, consider that a law firm or agency will be directly contacting your customers. It will be leaving them, and the rest of your customer base, with an impression of your business, and that impression will be either good or bad depending on who handles the account and how it is done.
An intangible asset of a law firm is the unspoken influence that it carries. You and your business may feel more comfortable with a law firm contacting your customers and representing you. Also, a law firm may implicitly prompt a greater response from a debtor who may be unmoved by an agency. A debtor may have several agencies contacting him for payments but only one law firm. Remember that most law firms are in the business of suing people, a consideration that is not likely to be lost on the debtor when he is choosing whom to pay first.
When speaking to a collector, you should make an inquiry regarding the collector's business and ethical standards. Ask to see the letters that they mail out to debtors on your behalf. Ask about their telephone demeanor and tone they employ with the customer/debtor. Ask questions about the collector's knowledge of your industry and how it will handle disputes related to the account.
Ask about the collector's training and certification. Agencies may have their collectors certified by American Collectors Association (AACA), a national affiliation of collectors. Some collectors have no certification at all.
It is also important that a collector thoroughly understands the laws governing their actions. The Federal Fair Debt Collection Practices Act (FDCPA) is designed to protect individual consumers from undue harassment from collectors. In a draconian fashion, the FDCPA imposes both civil and criminal damages for violations.
Collectors must understand both the FDCPA and local debt collection laws that almost every state has enacted. Ask questions about in-house training and the qualifications of the trainer.
It is important to investigate the logistics of working with the collector. Discuss how you can transfer information concerning your accounts to them. Large businesses typically handle the process electronically while smaller companies provide copies of billing statements, invoices and credit applications. Ask how and when you will be paid after a debt is collected. Be sure to inform collectors that you will want input on whether to cease collection of a particular account. Ask how you will be charged for the work already done on the account.
Your homework is not complete until you have investigated the collector's reputation. Obtain references, especially clients in similar industries. Also ask whether the collector complies with state licensing and/or bonding laws where the debtors reside.
Finally, check the collector for complaints filed against it with the state attorney general and the Federal Trade Commission which handles grievances for violations of the FDCPA. If the collector has several complaints on file, look elsewhere for your collection needs.
Make sure to follow up on overdue accounts immediately. Send reminders, but few tactics are more persuasive than a telephone call to the debtor.
If an account becomes past due, send out a series of past due letters. Set an absolute due date before the account is turned over to a collector such as 120 days past due. Do not extend this due date, but let the debtor know the consequences of failing to pay on time.
Use a credit application if you sell on account. The credit application should state that the customer will be responsible for the cost of collection if the account must be turned over to a collector. Also, require driver's license numbers and social security numbers. Obtain authorization to view the customer's credit history before agreeing to advance product on credit. For business accounts, a personal guarantee is invaluable.
If you need more information on this or any other business law matter, please contact our order to Orlando business attorneys today! We are available at (407) 500-0000. You may also fill out the online form provided and we will contact you shortly. As always, we value your privacy and will keep any information strictly confidential.