Nexa Collections

Debt Recovery

by

In-house collections vs Hiring a 3rd party collection agency: Cost Comparison

Engaging a collections agency is far more economical and effective than handling collections in-house, after an account is 30 days past due.

Let us break our analysis into parts – Collection Letters and Collection Calls. In collection letters phase all communication happens by sending written demand notices ( sometimes mixed with automated collection calls). In Collection Calls a “human” debt collector personally calls the debtor.

Sending In-house demand notices vs 3rd Party collection letters:

Do you think that collection agencies make tons of money by sending collection letters?
No !! Collection letters are sent on a razor thin margin.

Advantage #1
Cost per contact of an account is a lot more cheaper when engaging a collection agency:

Do you know that based on various estimates, engaging your in-house staff to send a single invoice or a single collection contact is between $16 to $30, when all costs are included. Factor in your in-house staff time, stationary, printing, mailing, equipment, utility costs, errors, software, office space, etc.  Yes, these costs add up just that we do not realize it immediately. Even if the cost of letters after the first one might be lower (than the first letter), still sending 5 contacts per account, means you are looking at a minimum of $50 per account even if your in-house staff is ultra-cost efficient. In most cases it will be much higher.

Sterling Commerce found that the cost of paper based invoice, on average, $30 per invoice to process.
https://www.industryweek.com/blog/cost-paper-based-invoicing  

According to “David O. Willis” in his book “Business Basics for Dentists”:
Estimates have have put the total cost of sending a single bill at $16.00.

Any agency which is charging $20 or less for an account ( 1 account = 5 contacts made to the debtor) is a good deal for you. The cost falls to almost $10 an account when higher number of accounts are purchased.

Besides the core cost savings there are 2 additional advantages when engaging a collection agency.

# Advantage – 2
A collection agency sends 5 contacts on your behalf, it will also include Scrubs like “Change of Address” and “Bankruptcy Scrub”, which your internal staff will not do.

# Advantage – 3
Since a professional collection agency is now involved the likelihood of a getting paid suddenly goes a lot higher. Involvement of a Collection agency puts more pressure on the debtor compared to when contacts are made by the in-house staff.

Doing In-house collection calls vs 3rd Party Professional Collector calls

A seasoned professional debt collector whose entire day goes in talking to debtors has too many techniques and tricks to recover debt than a typical in-house employee.

But, in-house collections has a unique advantage, early in the process – An in-house employee can request the debtor to make payment by calling them just after the payment is due, however a debt collector cannot do collection calls 90-120 after the past due date to federal laws.

Therefore it is best to transfer an account to this hard core “debt collection calls” when the account has already gone through the earlier process of sending demand notices or your internal efforts have exhausted or if the account has not been paid off even after 120 days.

Another aspect to think is that if a debtor has not paid you for 120 days now, he will likely not pay you unless he hears from a professional debt collector.

Conclusion

Collection agencies are able to provide cheaper service due to their high volume. Additionally a professional collection agency will certainly have a more efficient approach to collect the debt. Therefore, let your collection agency do what they are best with.. Collections! This also avoids your cost of staffing and training your business associates.

Collection agencies may have their own overheads as well like licencing costs, insurance & bonding cost, their own employees salary, contractor commissions, cost of running website/software, performing scrubs and more. But their costs per accounts are lowered due to the higher volume.

In-house collections do have an advantage that they are able to engage with the debtor on the phone earlier than a collection agency, due to the laws. Some business do not feel comfortable sharing their customer data to an agency. However, most collection agencies have procedures in place to keep the debtors data safe.

Bottomline, if an account is 30 days past due and your basic in-house invoicing approach has not been able to recover money, consider assigning that account to a collection agency before it gets too hard to get your money back. A collection agency can provide services starting from 1st party contacts, then switching over to 3rd party contacts and finally collection calls if needed.

Banks, credit card companies, car dealerships, doctors, gyms, US government, small business owners from all across the board have been using collection agencies for decades now. This is a proven model for recovering on past due accounts, therefore one should not hesitate contacting a debt collection agency and not try too hard to replicate their collections model with an expensive in-house staff.

by

How to make a Perfect Collection Call?

According to the annual CFPB 2017 report, there were 130,000 people employed by 6,000 collection agencies in the “$13.7 billion dollar industry”. Although the base salary of a debt collector is low, he (or she) can earn a lot in commissions, which are based on the amount of debt he collects. In this article we are assuming that the reader of this article (you) is a debt collector.

This is a fairly long and comprehensive article, we have attempted to make it as informative as possible.

Best case scenario:
Some individuals did not pay because they simply did not realize the seriousness of not paying the bill till they hear from a debt collector or they had simply forgotten to clear the dues. This happens more often than you would think. Lucky for you, such cases can be often cleared amicably in a single call.

1. Prerequisites

a) Prepare your mind:
Before making a collections call, make sure you are fully relaxed, and regardless of how bad your last collections call was. Tell yourself  “I will remain calm during this call, no matter what“. Let’s agree, a collections call from a debt collector is really that last thing any person wants to receive on given day. About half of the debtors (or less) will talk to you properly, others will give you all sort of excuses, some may even be nasty or abusive. Do not let any of this impact you, it’s a part of your job, laugh it off after the call is over. It is important for the debtors to understand that you are calling to work with them, not against them.

b) Yes, some debtors owe nothing, your data could be outdated:
Accept it, there is a possibility that the debtor might have already paid the debt, just that you are not aware of it or your corporate system is not up to date. In such cases, take whatever payment information the debtor can provide and end the call nicely. Get the payment information checked.

Collection calls are commission based, collection agency gets paid only when the debtor makes a payment. The debtors are ideally required to pay the collection agency directly and then the agency remits the amount back to their clients after deducting their collection fees. Occasionally, debtors pay directly to the clients, in this case the clients are required to pay the collection fees back to the collection agency. Your client could have just forgotten to inform you guys about this payment. Rarely, but you may come across some sneaky clients who intentionally do not inform you about the payment they received, hoping to avoid paying your collections fees.

And lastly, it is possible that the person really does not owe the debt or is protected since he is legally bankrupt. The debt could also be past the Statute of Limitations (SOL). Clarify your company’s policy when handling such past SOL accounts.

c) Inaccurate billing by clients:
Inaccurate billing and overcharging is another big complaint from debtors. This is particularly common in the insurance industry, phone and cable companies. These clients generally have no problem in paying off the debt, provided the bill is fixed per their understanding. Listen to the debtor, if he sounds genuine and the difference is large then discuss the matter with your supervisor after the call for the further course of action. At times, the debtor really owes nothing.

d) Be Professional, Confident and Somewhat Authoritative:

Imagine the debtor is sitting in front of you. Your attitude should be somewhat similar to a recruiter. Personally whenever I have taken a job interview, I tend to be in my best behavior, act professionally yet authoritatively.

A debt collector does not have the option to get angry. He should also avoid using any “Sense of humor” during the call. Something may be funny for you but may be offensive to the debtor. It’s a good practice to keep a smile on your face while making these collection calls, it helps to maintain a positive attitude. Never eat or drink during the call.

e) Compliance:

Be aware of the FDCPA laws (Fair Debt Collection Practices Act) and other state laws that may apply. Never cross those limits. Other laws like HIPAA or TPCA may also apply.

f) Review all the documents that you have before the call:

Scanning through the related documents once you are on the phone with debtor will look so unprofessional and unprepared. Here is some of the minimum information you should have in hand before making the call.
* Exact amount owed
* What services and products were sold and on what date.
* Date when the payment was due.
* Payment terms and any other supporting documents.
* A summary of previous communication between your client and your collection agency.
* If any payment has been made so far.
* Are you permitted to settle the debt for a lower amount?

Many debtors crosscheck the information a debt collector has about the debt in order to fend off the collector. But if within the first 30 seconds the debtor strongly feels that the collector must be having sufficient information about the debt, he will likely not go into further details, the tide will quickly turn from interrogation to how the debtor is going to pay.

g) Maximum time for the call:
Do you want to spend the same time in collecting on a debt which is $100 vs which is $1000, probably no. Obviously, you do not want to spend too much of yours and company’s time on a small debt. If the collection call on a lower outstanding debt happens to go for a longer time than anticipated, and its still unclear whether the call is going productive or not, try to get the debtor back from auxiliary discussions or end the call nicely, and possibly call the client at a later time. Try to keep your call short but effective.

2. Starting the call – First thing first:

a) Are you talking to the right person:

By law, you are not allowed to discuss collection matters to anyone other than the debtor himself (or the co-signer of the debt if debtor is unreachable/unable to pay). This is also called the No-Third party disclosure law. Ensure that its the right person on the other side. Some debt collectors additionally verify customers by checking their last four digits of SSN or address. Start your call by speaking clearly and with confidence, neither too loud or too soft.

b) If someone else picks the call:
If person on the phone does not know the debtor at all, then its possible that the debtors contact information has changed. You may need a Skip Tracing service to locate the debtor.

If this other person asks what you are calling about, you can simply say its regarding some business matter. In case its the debtor’s correct number, just that he is not available at the moment, you can either decide to call at a later time or politely leave a message with your name and number and request them to pass it to the right person.

c) Landline or Cell Phone
It is a always beneficial to be aware if you are calling on debtor’s personal landline, cell phone or work phone. FDCPA Collection laws are more strict when calling on the cell phone.

d) Voicemail
You can leave a voicemail but do not mention that the call is regarding a past due bill because if it is a shared voicemail box then you have can potentially disclose the debt to an unrelated person and violate FDCPA. Leave your name and number and request the debtor to call you back.

Good morning, my name is [ your name], we have an important message from [company name] for [Mr. John Doe]. Please call [company’s telephone number] and please mention the reference number [***xyz] when you call us back.

3. Your collection call starts now:

a) Address the debtor by his First Name, avoid using words like “Sir / Mam / Bro/ Buddy / Sis”.

b) Tell the debtor that this is an attempt to collect a debt, any information obtained will be used for collections purpose only. Some debt collectors record collection calls.

A little off the topic – These states require All Party Consent if the call is being recorded. (Washington, Pennsylvania, New Hampshire, Nevada, Montana, Michigan, Massachusetts, Maryland, Illinois, Florida and California.) This list could have changed by now, but overall your agency will make you aware of their call recording procedures and/or if you need to ask the debtor’s permission before recording the call.

c) Then you let them know who your client is, which would be whom ever you got the actual debt from.

d) Make them aware that the client has legally authorized your collection agency to collect the debt on their behalf.

e) Then right away ask the debtor how they would like to pay. Most collection agencies will accept payment over the phone. Get ready for all kind of excuses, we have an article on excuses here. Most likely the debtor himself will tell you the reason for non-payment, but if they do not then ask them.

f) If you end the call without getting a payment or without a commitment of payment date/amount then that call has been wasted.

g) Sound serious about getting the payment, if you do not show seriousness and haste, then the debtor won’t get serious either.

h) You can indirectly have the debtor to accept the debt by simply asking “Do you have any more questions regarding this debt?”

i) If the debtor tells that he will make payment at a later date, then right away ask him will it be by Check, Credit Card over the phone, Money order, (or other options like Western Union). Most debtors reply that they will mail a check, ask them which Bank/Credit Union will they use. All this will reflect how serious you are to get the bill paid off. If the debtor demands a return envelope for making the payment, then confirm their latest mailing address. In fact sending a payment envelope is encouraged, as serves an additional payment reminder.

j) If the debtors tells that they do not have money now, ask them when will they get their salary. Tell them to remit the following day and if they can call you to confirm when the payment has been sent.

k) Many debtors will start explaining you their personal financial hardships, although they may be correct but do not fall for those and yet do not appear indifferent. Take a middle route – “I understand why you are feeling this way”.

l) Try to finalize the payment arrangements, if the debtor cannot pay lump-sum then offer them to pay in installments. “To prevent you going further into the debt, I can offer you to make payment in installments“.

m) If the debtor is being unreasonably aggressive or angry, ask them “I have clearly called you at a bad time, when will be a good time to call you again.”

n) Take short notes, so you can recall what happened during the call. It will also help you to pin-point if debtor changes his story in the next call. Before the call ends, do let the debtor know that you have taken notes from this call. All this conveys your seriousness to collect the debt.

o) Give few seconds pause after your questions especially when you ask for the payment arrangements, allow the debtor to speak. Short silences are a powerful tool in debt collections, they will likely spill vital information.

p) Debtors may get angry, emotional, embarrassed and may even yell at you. Remember to stay calm and focused. Over time you will get immune to all these things. But, you can never threaten a customer. Making false statements like “You can go to jail” or “We know how to get money out of people like you” is a complete No-No.

q) If the debtor is not willing to pay at all, politely let him know the consequences of not paying the debt, which includes entry of this unpaid bill on his credit history.

Read your company’s policy before telling the debtor that “this account may be transferred to the legal team” is acceptable or not. If debtors feels that they are about to get sued, they will also contact a lawyer making your collection efforts even harder.

r) Lastly, if the collection call is going unfavorable, try to intelligently end the call rather than hanging up. This will help avoid making matters worse.

4. After the call ends:

a) Finalize/formalize your notes from the call, including dates on which the debtor has agreed to send money.

b) Most debt collectors become better over time. Do not hesitate to ask your co-workers (collectors) how they would have tackled a situation which you were not able to handle too well during the call.

c) If you unfortunately/mistakenly violated any collection laws or yelled back on the debtor, do make your supervisor aware of that right away before the situation gets worse. Any unfortunate/critical situation should be documented and communicated to your supervisor immediately.

d) Put a reminder for yourself to contact the debtor on the date on which you had agreed to talk again or when the payment is supposed to be made. Regular follow ups will maintain the pressure on him.

5. Debtor’s Legal rights:

a) Be aware, debtors are aware of their legal rights more than ever. There is an unlimited supply of articles and videos telling the debtor how to escape from making payments. Many of these videos do provide valid information but more often than you think these videos go over board and land up providing misinformation as well. People posting these video’s are often not even associated with the collections industry or lawyers. Their experience and suggestions may not even fully fit with the debtors own situation. They often arm themself with this misinformation and argue with you unnecessarily.

Even the state collection laws vary largely by state, which these videos generally do not talk about. Many people post these misguided video’s just to make money out of advertisements, nothing else. So, yes there is pretty good information online regarding the debtor’s rights, but there is an equal amount of incomplete/misinformation out there which a debtor may not realize.

Then there are lawyers who make a living out of filing a lawsuits against the collection agencies. Many debtors are so much loaded up with information (and misinformation), that they may start sounding attorneys themselves.

b) According to consumerfinance.gov, the debtor has the legal right to ask you these things:

* Identity of the debt collector, including name, address, and phone number
* The amount of the debt, including any fees such as interest or collection costs
* What the debt is for and when the debt was incurred
* The name of the original creditor
* Information about whether you or someone else may owe the debt

Debtor can also tell over the phone or send the collection agency in writing:

* I do not owe this debt.
* I need more information about this debt.
* I want the debt collector to stop contacting me.
* I want the debt collector to only contact me through my lawyer.
* I want to specify how the debt collector can contact me.
* Dispute the debt itself, likely within 30 days of the first contact.

A debt collector needs to be flexible and handle situations smartly and diplomatically. A collections call is never easy. There is no magic-wand to collect debt.

Information presented here is not a legal advice or something which fits in all situations. There are way too many situations and laws beyond what have been covered above. A large portion of this article is based on the feedback I got from fellow co-workers during my last 15 years in the collections industry.

We would really appreciate your feedback on this article, and how to enhance it further.

References:
https://www.consumerfinance.gov/ask-cfpb/what-should-i-do-when-a-debt-collector-contacts-me-en-1695/

by

Debt Collection Lawyer or Agency – Who is Better?

Selecting between a Debt Collection Lawyer versus a Collection Agency is often a confusing decision. If you talk to them or go to their website, both entities generally try to sway you towards using their own respective services. But, there are many scenarios where decision to select the right one is rather straightforward, in other cases it is a matter of personal preference and complexity of the case. Interestingly, many clients use both entities, starting with the Collection Agency first and Collection Lawyer later.

Lets briefly understand how both these entities work:

Most Collection Agencies offer 3 types of services. Collection Letters, Collection Calls and Legal Collections. An agency will send between 3-5 collection letters on their letterhead asking debtors to pay. The verbiage on each letter becomes more and more intensive. These letters warn debtors of the stern consequences of ignoring the repayment. These set of 3-5 letters cost roughly around $20 in total. Payment for Collection Letters is done upfront, regardless the debtor pays or not. If the debtor pays the outstanding debt, you get all that money and collection agency does not charge anything. In Collection Calls, a debt collector calls the debtor personally and asks him to pay, sometimes in installments. The debt collector may even settle the debt for a lower amount with your (creditor’s) permission. For Collection Calls the Agency charges a contingency fees, means they will only charge if any amount is collected. If they do not recover anything, no money is charged. Typically agencies keep 25% to 50% as their commission. Legal Collections or the Attorney based collections are very similar, we will discuss it below.

Unlike one size fits all approach which is followed by the collection agencies for the Collection Letters and Calls, Collection Lawyers take a very different approach. Once they study your case, they will give you a preliminary estimate. Their contingency and upfront fees (non-contingency fees) will vary based on how difficult it is to collect the debt. A debt which is harder to collect will require a higher upfront fee and a lower contingency fee. Additionally, depending on the amount of outstanding debt, they will charge a lower commission on large amount debts (around 10% on a $50,000 debt) , but higher commission on smaller debts (around 50% for debts around $1000). There will be additional costs like Court Costs, Attorney Suit Fee, Per Hour Fees etc. which again vary in each case. Lastly, for the older debts, the Attorney’s charge a higher fees as they are harder to collect.

Collection Agencies which offer Legal Collections sometimes have their in-house lawyers, other agencies transfer your case to one of the Collection Attorney with whom they have a tie-up.

Back to the priceless question, how to select?

1. Is the amount of debt large or small?

Hiring a Collection Attorney for outstanding amounts less that $1000 ( or even up to $1500) makes very little sense. For smaller debts go for a Collection Agency and select their Collection Letters and Collection Calls service. If the amount is still outstanding, ask the Agency to give you an estimate for doing legal collections. You can further compare it with Collection Attorneys in your area.

For amounts more than $10000 its better to go to a Collection Lawyer, if you are fine to pursue a lawsuit against the debtor. As mentioned before, always get a quote from attorneys in your area and also check their BBB ratings if avaiiable (or on bbb.org).

For amounts in between $1500-$10000 you can go either way. A lot depends on the circumstances of the case and your personal choice. Many clients like to use the low cost Collection Agency’s Letters Service first ( between 60-90 days of the past due date) and then approach Collection Attorneys as the next step (past 90 days of the due date).  The reason is that if a client has not responded to the demand letters of a Collection Agency, they directly want to turn up the heat by involving the Attorney without wasting anymore time.

NOTE: If your debtor is a commercial business (not an individual) and you do not want to stain ties with them, yet apply a decent amount of pressure to recover your money back, then certainly go with an agency who specializes in Commercial Collections.  A Commercial Collection agency is a expert in collecting commercial/B2B debts.

2. Do you want to take your client to the court ?

As mentioned earlier, most collection agencies offer services which are one size fits all kind of an approach, therefore their costs are also lower than attorneys who take each case individually. Majority of debtors take Collection Letters MODERATELY/SERIOUSLY, Collection calls VERY SERIOUSLY and Legal notices from an attorney EXTREMELY/MOST SERIOUSLY.

For hard to collect accounts with higher balances, you should consider taking legal action directly. But, if you do not want to take the matter to the courts, then its better to stick with a Collection Agency only.  Many creditors avoid Collection Attorneys because of the the negative image that are associated with using legal action.

3. Do you think your debt is very hard to collect ?

If you are not sure which way to go, but definitely apply full force right from the start, then Attorneys are the way to go.

4. No Recovery, No Charge

Regardless which ever one you select, if an Attorney or Collection has a “No Recovery, No Charge” policy, then give it a serious consideration, even if it charges a higher commission than others. If they are unsuccessful in collections, you lose nothing.

5. Does the Agency/Lawyer have a industry specific specialty:

Some Agencies/Lawyers specialize in a particular industry. Ex Healthcare, Car Dealers, Tenants or Student loans. These collection Agencies/Lawyers should be given a serious consideration.

6. Forcing user to pay:

If a debtor has 100K sitting in his bank account, and yet he is not paying up a debt of 10K. Only a court order can force him to clear your bill. This is where a Collection Attorney has a clear advantage over a Collection Agency. Attorneys may further get court orders to garnish the debtor’s wages. Collection agency cannot force a debtor to pay (With Collection Letters and Calls) unless they too go for the legal option. Most lawyers are affiliated with Commercial Law League of America (CLLA), International Association of Commercial Collectors (IACC) or at narca.org. Filing a lawsuit is the most powerful weapon against the debtors.

Conclusion:

Debtors take legal actions much more seriously. Most Collection Agencies have a one size fits all approach for their Collection Letters and Collection Calls service  therefore their service is relatively cheaper. This is also the reason why Agencies are able to work on such a large number of cases at a time. Commercial Collection Agencies do tend to have a more customized collection approach and are an excellent choice for B2B collections. Collection Attorneys have a nearly 100% customized approach for your case, hence they are usually more expensive.

 

 

by

Client won’t pay: How to collect money without ruining relationship

Collecting unpaid bills from your regular customers, vendors or clients can be very tricky. Demanding for unpaid bills and yet continuing to maintain a business-friendly relationship requires a well thought out approach.

Soft approach vs. a firm approach, which works better? There is no single good answer, it all depends from person to person.  A general rule is – Do not try to be extremely personal or soft with the client only to be taken for granted. Similarly do not interact too firmly or appear indifferent to their problems, this may irritate the client and he may intentionally delay your payment even further.

To avoid ruining business relationship, talk to your client with great respect, yet carry out your conversations in a very professional manner. Be slight firm, its your money, they must pay it, but do not sound too authoritative and never hurt their ego or self respect.

1. Has this happened for the first time:

There is a fair amount of possibility that the delay is due to an oversight, glitch or temporary circumstances. For example, an officer who issues check could be on leave, a non-serious cash flow crunch in the client’s company that is temporary in nature or may be the client never received your invoice or lost it by mistake. Politely send another “reminder” invoice by “certified” mail, keep a copy for your records. You should also make a phone call the day after the client receives your “reminder” invoice. Say something like this .. “Sir, may be you did not get our invoice last time, therefore we have re-sent it.“, then carefully listen to what the client has to say.

Client will likely give you the reason of non-payment without you even asking for an explanation, or they may simply tell you that the payment will be issued today or tomorrow. If the client appears to be deferring the payment or giving false excuses, take it as a big red flag. Keep this account under watch. If the payment does not get issued soon, you will need to take this to the next level.

Your staff should also be informed in advance to be extremely careful while communicating with those clients who you want to keep long term business relationship. They cannot treat these clients in the same way as they treat other non-paying debtors.

2. Has the client started to repeatedly delay payments?

There is likely a bigger problem brewing at your client side. May be the clients own business is not doing too well. Politely ask “Sir, we have been doing business with you for X number of years and getting payments was never much of a concern earlier, would you mind sharing with us what has changed recently?“.

I always believe that apart from insisting clients, do tell them that you are also facing problems because of non-payment. It could be even as simple as this “Sir, since your payments have been delayed, it has created some cash flow problems for us as well. We run our business on thin margins. I request you to clear our bills at the earliest“. Showing your problem will convey client that its not just your willingness to get the funds transferred fast, but there is a compelling business need too.

3. Do you have a better alternative

If getting paid for your products or services has become an ongoing problem, start looking out for other business partner / suppliers who do not have a cash flow problem. If doing business with them has become too risky, may be its the time to cut the cord.

4. Do you know the reason behind these non-payments

Ask politely “Sir, may I know the reason for delay in making payments?”. Although you can never be sure if the reason given by your client is true or not. Keep notes of what client says during each call. Be mentally prepared for all kinds of excuses. Next ask when they will pay, and wait for an answer. Be patient and listen to your client.

5. Show faith in your client. It helps.

“Sir, we have been doing business together for a while, we have great trust in their organization“. Call it “moral faith” or “moral pressure“, but it works. Create a good relationship so they will want to pay you first because there may be other parties like you who are also waiting to get paid.

6. Control your anger

Speak less and to the point. Be a good listener. Regardless of the circumstances, never sound harassing, never try to threat your client or lose your temper. It can result in a counter legal action against you.

7. Give them option to pay in installments

Has it been over 3-4 weeks past the payment due date and the reminder invoices have not worked? Now try giving your client an option to pay in installments.

**** Facing serious issues collecting your money .. now what ? ***

7. Can the situation still be resolved amicably

Lets say, the Client has failed to make payment on the recommitted date too. He is avoiding taking your phone calls, needs even more time to clear your payment, has started to unreasonably dispute your services or other excuses which clearly indicates that you are not going to recover your money easily. These things indicate that the line of an amicable solution has likely been crossed.

8. Have you waited too long?

Approach a collection agency or a collections law firm if it has been between 50 days to 60 days since your payment was due. They will likely take an action after 60 days. Statistics prove that longer you wait, harder it becomes to recover that amount. Involvement of a professional collection agency automatically puts additional pressure on the client, plus good agencies have many legal ways to collect money which you may not know. Most commercial collection agencies will not charge you anything till your money is collected. Depending on the amount owed and circumstances, collection agencies charge typically between 20% to 50% of the amount they are able to collect. Fully understand the fee structure before selecting your collection agency / law firm.

9. Maintain proper proof of the services/products delivered and communications thereafter.

Keep all invoices, proof of goods or services delivered and copy of reminder invoices sent by you to the client. Also keep a copy of communications done via email and date/time of phone calls made by you to your client and what they told you.

10. Take legal action.
Depending on your situation your collection agency or law firm will advice you if filing a lawsuit is advisable or if they want to try to solve the situation amicably in their own way..

Obviously, there is no guarantee that your business relationship with the client will remain intact, but a step by step approach will increase the chances of resolving things in a nice way.

VIDEO:

by

Statute of Limitations in Debt Collection

Statute of limitations (SOL) is a time period after which a debt collector loses the right to sue the debtor or take any legal action against him. Statute of limitations laws vary from state to state, for example in California it is about 4 years while in Rhode Island it is 10 years. In most states it’s between 3 to 6 years. Debts that have passed the statute of limitations are known as “time barred debts”.

Q1. If the statutes of limitations have passed, is the debtor free from debt?

No, the debtor still has the moral obligation to pay. The debt has not disappeared just that the debt collector can no longer force a debtor to pay or sue him in the court.

Q2. If a debt collector contacts a debtor after the Statute of limitations has passed, has he broken a law?

Not necessarily. Let us look at these scenarios.

– A debt collector may have a wrong “Date of Debt” in his system. It is also possible that the debtor has wrongly calculated it and Statute of limitations have not yet expired. Both parties should clarify this amicably so that there is no confusion. Present the proof if necessary.

– A Debt collector can still try to collect by sending a letter and calling over the phone. The debtor can tell the collector that he has no intention to pay and he cannot be forced to pay since the SOL has passed. The guidelines on statute of limitations varies by each state (and sometimes cities too), a collection agency must be very careful while trying to collect on these time barred debts.

Q3. What are the consequences of not paying the debt after Statute of limitations have passed?
The debt collector can report the bad debt to the credit bureau reporting agencies like Experian, Transunion and Equifax. That unpaid debt will appear on the debtor’s credit history for many years (typically 7 years). This will greatly lower chances of a debtor from taking more loans and sometimes even making it harder for him to get a good job for many years to come.

There is another consequence of not paying the debt. If the financial institution forgives or writes off a debt which is more than $600, they may send a Form 1099-C to the IRS and a copy to the debtor as well. This is applicable to the principal amount only and interests and other fees cannot be added. IRS will make sure that this amount is added to the debtor’s income. There are some exceptions when this is not applicable like, discharge of debt due to bankruptcy or debtor’s insolvency etc. Since debtor took money and did not pay it back, IRS treats this as an income and demands tax on it. If the debtor claims insolvency then IRS form 982 may apply. Debtor should consult a tax professional to handle this scenario.

Q4. How is the Statute of Limitations date calculated?
First of all let’s understand the “Date of Debt” concept. It is the date when the debtor made some activity on that account. It could be the date when the item was purchased, or when the payment was due, or when the last payment was made or even when the debtor re-agreed to pay the debt ( means the debtor has agreed again to the ownership of the debt). The most recent date is called the “Date of debt” and the SOL is calculated from that date.

A debtor may have agreed to pay in 4 different ways
a) Oral Contract – Debtor agreed to pay orally (ex: an orally recorded phone message)
b) Written Contract – This could be a signed contract or an invoice.
c) Promissory Note – In this the details of repayments are spelled out – Example mortgages or car loans.
d) Open-ended– Here the balance and repayment terms can change- Ex: Credit cards, line of credit etc.

Following are some examples of Statute of Limitations by each state (in number of years).

State Written Contract Oral Promissory Open Ended
Alabama 3 6 6 3
California 4 2 4 4
Delaware 3 3 3 3
Florida 5 4 5 4
New Jersey 6 6 6 6
New York 6 6 6 6
Rhode Island 10 10 10 10
Texas 4 4 4 4

A state may alter the Statute of Limitations period, therefore do not rely on the table above. Your collection agency should have the most up to date information on this. A proof of last activity may be a copy of check, credit card statement and other forms of communication that may have happened with the debtor.

Q5. What can Restart the Statute of Limitations?

If a debtor makes even a small payment ( say even $10) after the Statute of Limitations has passed or agrees to make payment under a new arrangement, it can potentially reset the “Date of Debt” again. In other words the Statute of Limitations will reset and the debt collector can sue debtor in the near future.

Q6. Can the old debts be removed from the debtor’s credit report once the Statute of Limitations have passed?

It can be removed only if the debt is inaccurate or legally disputable or has been resolved. Statute of Limitations has nothing to do with credit bureau reporting and affects the credit score for 7 years.

Q7. Why is there a concept of Statute of Limitations after all?

It’s kind of a fairness doctrine. A debtor cannot be harassed all his life for a debt he could not pay. After all even a creditor takes a risk if he does not take the full payment right away. As the debt gets older, circumstances change, documents are lost and important evidence can be misinterpreted. The objective is to encourage diligent collections while evidence is available and fresh. Considering all these factors, the Statute of Limitations came into existence.

Are you looking for a collection agency? Get in touch with us by visiting our “Contact us” section.

Video: 

https://youtu.be/z2v9oziK4rk

by

How to select a good collection agency?

There are about 5000 collection agencies in USA … Yes, you read it right. Each agency claiming to be the best, of course because then need business from you. 

We have shortlisted a few collection agencies based on their performance, pricing and experience. You may contact us in case you are looking for one.

Hiring a collection agency is like selecting a reliable business partner. Here are the main factors that will assist you in shortlisting which collection agency is the best for you.

1. Does the agency have experience in your industry?

Laws and techniques of collecting money differ from industry to industry. For example, the approach used to collect money from the customers of a car dealer is very different when money is collected from the patients of a dentist. A doctor may want to use diplomatic verbiage to collect debt, while a car dealership may want to go for intensive collections.  HIPAA privacy laws apply only when the debt is from healthcare industry. Your collection agency should have experience in collecting debt which is relevant to you.

2. Collection agency’s reputation:

Ask for references from your lawyer or your chamber of commerce. You may also check reviews on Better Business Bureau (BBB) website, but collection agencies never have good reviews due to the nature of their work. Check if they are registered on the ACA website. Most reputable commercial agencies are members of the International Association of Commercial Collectors. 

Ratings are important, but it is also important to understand that agencies which collect from individuals generally have a lower rating than those who strictly do Business collections. So, make sure you are not comparing apples to oranges.

Overall, you want to select a low risk provider. Do check if your agency insured and bonded.

3. Do you need services for Individual or Business collections (or both?)

Individual (or Consumer) collections refers to collecting money from individual debtors (a person). Business (or Commercial) collections is Business-To-Business collection.

What kind of debtors do you have – Individual or Business or Both? Therefore check if your collection agency has experience in dealing with the kind of debtors you have.

4. Adherence to rules and regulations:

All collection agencies must follow rules specified by the Federal and State governments, which includes not indulging in threats, harassment or falsifying information. Contrary to popular perception, there are plenty of good bill collectors out there. While the occasional bad actor gets the headlines, less than 0.01 percent of all collection contacts end in complaints to state or federal regulators or the Better Business Bureau, according to ACA International, a Minneapolis, Minnesota-based industry trade group.

Such collectors generally have a short career in the industry. Following laws is essential for the survival of a collection agency. Illegal actions can result in heavy fines on the collection agency and even the client (the original creditor). After all the collection agency is collecting on creditors behalf. A collection agency which follows guidelines like FDCPA and HIPAA are less likely to get sued. Members of the Commercial Collection Agency Association are the only collection agencies certified by the Commercial Law League of America, and they have to pass some stringent requirements to obtain that certification.

Is your collection agency willing to provide detailed information on their collections process? For instance, exactly how will your customers be contacted, how often, and in what manner?

5. Licensed to collect in all 50 states

If your debtors are local, then hiring a local collection agency is suffice. But if your volume is large and your debtors are present in many states or may move to other states then it is recommended to select a collection agency which is bonded and licensed to collect in all 50 states.

6. Insured or not

Collection Agencies should ideally carry Professional Liability coverage for their errors and omissions. Defense for suits alleging failure to comply with the Consumer Protection Acts are the most common suits Collection Agencies face. FDCPA lawsuits are rising every year. Even frivolous claims cost money to defend; thus, this coverage is vital to a Collection Agent’s business.

7. Ask for references and their recovery rates

Ask your collection agency to provide references of their old or current clients. Not all collection agencies will provide this. But an agency should be able to minimally provide their average recovery rate for your industry. This will give you a fairly good idea about their debt collection performance.

8. Do their services and cost suit you?

Typically, debts lower than $1000 generally does not require a customized collection approach. Bigger the debt, higher is the need for a customized approach. Some services are flat fee based while others are percentage based? Here are some examples of services which collection agencies offer.

a) Written Demands: These are collection letters and cost about $20 for 5 letters. Do they offer pre-collections as well? ( in pre-collections, demands are made under your name instead of the agency.)

b) Collection Calls: These are percent based collections. Depending on the balance, age and services provided, a collection agency may charge between 10 to 50% commission of the amount collected.

c) Legal suit: This is also percent based collection and is suitable for larger outstanding debts only. An agency may charge between 10% to 50% commission for legal collections. Some collection agencies have tiered contingency rates based on size and age of the account.

Lookout for savings: Make sure to fully understand the fee structure of the collection agency. One collection agency may charge 40% for a service; however a similar agency may charge you 25% for the same service.

9. Technology:

Does your collection agency have an online client portal, so you can see the debt collection status of each account submitted. If they do not have a client portal, will they keep you informed about the collections activity or proactively tell you when a payment is received? Do they take enough measures to secure your and the debtor’s data? If they accept credit cards, they should ideally be PCI complaint. Does their online client portal use Secure Socket layer ( SSL / Https protocol). If they are sharing data with other parties, are those secure or not.

10. Skip tracing services

Skip tracing is a service which allows a collection agency to try to locate a debtor if their contact information (address/phone) has changed. Unable to locate a debtor is a fairly common scenario, therefore using skip tracing to find debtors latest whereabouts is an important part of collections. [See our detailed article here on Skip Tracing]

11. Background check on debt collectors?

A collection agency should check that the sensitive data of their clients is not handed over to those debt collectors who have a criminal background. Your reputation is very important, and you want to ensure that the debt collector is not prone to use collection methods that harm your reputation.

12. Credit Bureau reporting:

Many collection agencies do not report noncollectable debt to the credit bureaus. During a collections call, if a debtor asks the collector “Will you report this to Credit Bureaus if I do not pay”, or “Will this appear on my Credit History?”. If collector says “NO”, the debtor is less likely to pay.

13. Litigious customer check

 Few debtors have a history of suing back businesses who they need to pay. Ideally a Collections Agency should do a scrub if a customer is litigious or not and advice you accordingly. Very few agencies do it.

14. Validity of accounts :

For written contacts, the accounts you buy come with an expiration date ( typically 1 year or 2 years). Its ultra rare for an agency to offer accounts which do not have an expiration period. This enables you to buy a big chunk of accounts for a cheaper rate, and keep using it over the years. A $20 account cost for 5 contacts will fall to around $10 per account when a large chunk is purchased.

15. Are you being pushed for contingency services :

Fixed fees services have an upfront cost but are extremely cost effective. Core collection calls made by a debt collector are contingency based and are a great deal for the collections company but not you. So if the age of your accounts if within 120 days and still you are being pushed for contingency collections by their sales person, think twice. 

Note: 
We have listed a lot of selection factors above. Even a great collection agency may not be able to fulfill all points discussed above, that does not make them bad or inferior. But this list will certainly help you to make a meaning selection when comparing one collection agency with another.

Getting the most out of your collection agency:

1. Be honest to your collection agency. Keep them informed of any changes that you may become aware of during the collections activity on an account. Keep all the paperwork supporting the validity of the outstanding debt and provide them when asked by your collections agency.

2. Sooner you submit an account for collections, better the chances are of recovering that money. Typically, a collection agency will accept accounts 60 days after the payment date was due (also called the date of debt).
Debt Recovery Chances

Visit our “Contact us” section to get in touch with one of our shortlisted collection agency.

Video:

https://youtu.be/npFGCR3y5WY