Debt Recovery

You are wrong if you think that ignoring written demands and calls from a collection agency will spare you from all the consequences.

A debt collector has several ways to find your latest address, phone number, and employer information. This process is called skip tracing. Your credit card address, USPS change of address, address on your most recent bills are collected by data aggregation companies and/or credit reporting agencies. The majority of this data is accessible through the skip tracing service providers. In this digital age, hiding is hard.

If you do not dispute the debt within 30 days of the first contact made to you (through phone or letter, or other permissible means), the debt is considered valid, and the debt collector can continue to contact you.

If the debtor is not traceable or unresponsive, a collection agency can file a lawsuit, and if you do not respond in court on time, it can result in a default judgment against you. Repercussions can include wage garnishment, frozen bank account, and other assets. Collection laws vary by state, but there are provisions in every state on how unpaid debt can be recovered.

Not every case lands in court. However, most unpaid bills are reported on the debtor’s credit report and stay there for seven years. This diminishes the chances of securing a new loan, getting a good job and even finding a new apartment to live in.

Although all this may look draconian, imagine what will happen to businesses in the USA if most bills remain uncollected. Businesses will shut down, people will lose jobs and the economy will suffer dearly.

Collection agencies have a significant role in protecting businesses, and even the government has laws and provisions that can be followed to recover accounts receivable.

Ignoring a debt collector’s calls can be quite unfavorable.

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Image source:
https://commons.wikimedia.org/wiki/File:Bury_your_head_in_the_sand.jpg
Sander van der Wel from Netherlands, CC BY-SA 2.0 , via Wikimedia Commons

Hiring an aggressive debt collector may initially seem like an effective way to recover outstanding debts, but it comes with a number of disadvantages and potential risks.

Times have changed when collectors could quickly put aggressive pressure on debtors or use forceful tactics to recover your money without any repercussions. There are well-defined debt collection laws, both at the federal and state level, that prohibit debt collection companies from using abusive, unfair, or deceptive practices to collect debts: A typical fine – $1000 per debtor.

Thanks to the internet, debtors are very well aware of their rights today. Google yourself “debt collector harassing me“. In your search results, you will see countless attorneys whose full-time profession is to sue debt collectors at no cost to the debtor. Such attorneys get a cut from the fine paid to your debtor for violations. And you guessed right, most courts issue unfavorable judgments for the debt collectors.

1. Damage to Customer Relationships: Aggressive debt collection tactics can severely damage relationships with customers. A customer who feels harassed or mistreated is unlikely to do business with the company again, and may also discourage others from doing so.
2. Reputation Harm: The reputation of a business is very important. Aggressive debt collection can create negative publicity and damage a company’s image, which can in turn affect future business prospects.
3. Legal Risks: There are laws and regulations governing debt collection practices, such as the Fair Debt Collection Practices Act (FDCPA) in the United States. Aggressive tactics might cross legal boundaries, potentially exposing the business to lawsuits, fines, or other penalties.
4. Increased Costs: If legal action is taken against the business due to the behavior of an aggressive debt collector, it can result in additional expenses in terms of legal fees and potential settlements or fines.
5. Stress on Staff: The staff within the company may be stressed if they are aware of the aggressive debt collection practices, especially if they have to deal with upset customers or legal issues. This can also create moral dilemmas for employees who feel that the tactics are unethical.
6. Loss of Negotiation Opportunities: Aggressive collection tactics might cause the debtor to become defensive and uncooperative. This could lead to lost opportunities for negotiating a mutually acceptable payment plan or settlement.
7. Escalation of Conflict: Aggressive tactics can cause the debtor to become antagonistic, potentially escalating the conflict, which could make the collection process more difficult and drawn out.
8. Mental Health Impact on Debtors: Aggressive collection practices can have a detrimental effect on the mental health of the debtors, which is not only unethical but might also add to the negative public perception of the company.
9. Impairment of Objectivity and Assessment: An aggressive stance may sometimes be based on a lack of comprehensive assessment of the debtor’s situation. In some cases, a more compassionate approach, based on understanding the reasons behind non-payment, could lead to better resolutions.
10. Market Perception: Particularly in smaller industries or communities, aggressive collection practices can affect how a business is perceived among peers and competitors, which might have longer-term implications for partnerships, collaborations, and market positioning.

Considering these disadvantages, it’s important for businesses to carefully weigh the potential benefits and risks of their debt collection approach, and ensure that they adhere to ethical practices and legal regulations. A balanced approach that includes clear communication, understanding, and negotiation can often be more effective in recovering debts while maintaining good customer relationships and a positive business reputation

Distribution companies regularly have accounts receivable, generally Commercial (B2B). The probability of collecting money from unpaid invoices decreases as time passes by.

Your accounting or internal staff hates chasing people for accounts receivables. Debt collection is neither their core strength nor they were hired to do this job. On the other hand, a business debt collector performs recovery all year long, and you cannot match their efficiency and effectiveness through the in-house employees.

A collection agency will quote a custom fee based on the age and outstanding amount. Need a good collection agency? Contact us

Wholesale and Distribution Companies Accounting Issues

Here are some accounting issues that are particularly relevant to distribution companies:

1. Inventory Valuation: Properly evaluating inventory is a major accounting issue for distribution companies. They must choose an inventory valuation method (e.g., FIFO, LIFO, Weighted Average) that accurately reflects the cost of goods sold and the inventory value on hand.
2. Inventory Shrinkage: Distribution companies often face the problem of inventory shrinkage due to theft, damage, or errors. They must have proper accounting controls to account for and minimize shrinkage.
3. Revenue Recognition: Determining when revenue should be recognized is crucial. For example, should revenue be recognized when the product is shipped, delivered or when the customer takes possession? This must be consistent with accounting standards.
4. Foreign Currency Transactions: Distribution companies dealing with international suppliers or customers have to manage foreign currency transactions and the accounting implications of exchange rate fluctuations.
5. Managing Accounts Receivable: Keeping track of accounts receivable, and ensuring that customers pay in a timely manner, is essential for cash flow management. The company must also account for bad debts and decide on an allowance method.
6. Freight Costs: Accounting for freight costs and determining how they are allocated to inventory or recognized as an expense can be challenging, especially if the company uses various modes of transportation.
7. Managing Accounts Payable: Timely and accurate accounts payable management is crucial to maintain good relationships with suppliers and avoid overpayments or duplicate payments.
8. Cost Allocation: Properly allocating costs such as warehousing, handling, and distribution to products is important for accurate product pricing and profitability analysis.
9. Tax Compliance: Understanding and complying with various tax laws, including sales taxes, VAT, and corporate income taxes, is a significant accounting issue, especially for companies operating in multiple jurisdictions.
10. Technology Integration: Distribution companies often use various technology systems for inventory management, order processing, and accounting. Ensuring these systems are integrated and that data flows accurately between them is critical.
11. Financial Reporting and Compliance: Ensuring that financial statements are prepared in accordance with accounting standards (such as GAAP or IFRS) and that the company complies with regulatory requirements is a continuous challenge.
12. Internal Controls and Audits: Implementing effective internal controls to prevent fraud and errors, and ensuring that regular audits are conducted, is essential for the financial integrity of the business.
13. Valuation of Intangible Assets: Distribution companies may have intangible assets such as trademarks, customer lists, and contracts. Accounting for the valuation, amortization, and impairment of these assets is an important issue.
14. Employee Costs and Benefits: Accounting for wages, benefits, and other employee-related costs, especially for a large workforce, is also a significant concern for distribution companies.

Summary: Indeed! Individuals can be legally forced to pay their debts with their cryptocurrency, but the creditor must have a judgment which states that the debtor is obligated to pay off the debt, including any cryptocurrency they own. Knowing whether or not the debtor owns crypto like bitcoin is of course a challenge. That is why a creditor must attempt to file a legal suit in which the debtor must declare all his assets under oath when asked by the judge.

Debtors are legally bound to pay their liabilities like outstanding credit cards or unpaid bills etc. Creditors have the legal right to claim for debts, and in case of nonpayment, they must attempt to ask the courts to bind individuals or companies to pay back their dues with all their financial assets, including the debtors’ crypto assets. Laws differ from state to state. Therefore one must ask their local attorney for the best possible approach.

U.S. government regulatory bodies treat cryptocurrencies differently.

• Security and Exchange Commission (SEC) treats cryptocurrencies as securities,
• Commodities and Futures Trading Regulator (CFTC) considers cryptocurrencies as commodities, and
• Internal Revenue Service (IRS) claims digital assets like properties.

The creditors should vividly understand how various regulatory bodies define cryptocurrencies before claiming their debts to pay with the digital assets of debtors.

Let’s review what could cryptocurrencies had seized by the U.S. government earlier before?

There are several occasions when the regulatory authorities of the U.S. have seized billions of dollars worth of cryptocurrencies to stop tax evasion, money laundering, false filling of tax returns, and trading illegal goods.

Recently, CNBC reported that IRS had confiscated around $1.2 billion worth of cryptocurrencies this year. The U.S. Marshals Service is responsible for auctioning the U.S. government’s crypto holdings. So far, Marshals agent has seized and auctioned more than 185,000 bitcoins valued at over $7.2 billion—notably known auction of 30,000 bitcoins from the Silk Road. In June 2021, the U.S. government auctioned more than $21,000 of bitcoin, litecoin, and bitcoin cash to compliance tax liability.

The sale proceeds are deposited into the U.S. Treasury Forfeiture Fund and the other commonly known fund is the Department of Justice Assets Forfeiture Fund.

How do traditional payment methods work to collect payments?

Traditional payment method depends on centralization and the controlled influence of intermediaries. Users have no access to control and command.

Cash-based mechanisms build on a trusted system supported by the legal and regulatory bodies and are accepted mediums of exchange between judiciaries.

Contrary to this, decentralized distributed systems are trustless systems that do not rely on the parties; they depend on protocols that manage financial services.

Blockchain restructured the financial system in a decentralized way. The decentralized finance market DeFi has touched the peak of 89 billion dollars as of May 2021.

Here we discuss how U.S. traditional payment systems work and fit in the current legal and regulatory framework.

Alias walks into the restaurant to buy a cup of coffee. She can pay to the restaurant using multiple payment options. She can pay with provided below options;

• Cash
• Credit card / Debit card
• Mobile app including PayPal, Apple App, etc.

Cash is the preferred payment option. It doesn’t require the payer’s identity, but the main risks associated with cash are theft, loss, or carrying issues. The other preferred payment system is cashless payment through credit, debit card, or mobile apps.

 

Various payment options have different implications for payer and merchant.

Each payment method is accompanied by its own procedure and transfer rules from the buyer’s financial intermediary to the merchant’s financial intermediary body.

When the buyer makes the purchase, and the payment is delivered to the seller. Financial intermediaries should charge transaction fees, money can be theft electronically & transactions across borders takes plenty of time to execute due to the intermediary clearance settlement system.

The settlement process is complicated where goods or services are being exchanged against payments.

When the payer initiates the payment through Credit/Debit card, the merchant sends the transaction to a payer’s account to verify the payer’s identity, device, or transaction message connected to the payment system. In this way, the payer’s bank initiates payment to the merchant’s bank. This process also involves checks at various points, such as passwords, to verify the payer’s identity. The payer’s account provider verifies the identity of the payer before making the transfer of funds.

Then clear the payment to confirm the transaction before settlement. Finally, a receipt is issued to the payer when the merchant receives the funds. The amount is reconciled between two or more entities & finally, the payment process is completed.

When a payment transaction passes, it credits the merchant’s account and debits the payer’s account.

How does Blockchain work?

Blockchain is a digital ledger that keeps immutable or non-forfeitable records of transactions and distributes them across the network of computers or nodes on the Blockchain, eliminating the need for third parties or financial institutions to process payments.

Transactions on the Blockchain are cryptographically secured. The term cryptography is used for the hidden art of writing secret codes. Every transaction recorded in the block is duly time-stamped and added to the already existing Blockchain, making the blockchain chain.

Here is the infographic that describes how does Blockchain works?

How will Debtor pay his Debt to the Creditor in a decentralized way?

Let’s understand by giving a simple explanation of how blockchain process the debt payment transactions that contribute when to interact with Creditor’s wallet to share value transmission across distributed ledger network without an external intermediary, ensuring transparency between Debtor and Creditor.

Every user or node keeps two keys; a public key and a private key in the blockchain network. The public key is used to encrypt/lock the transaction, while the private key is used to decrypt/ unlock the transaction.

A debtor can either transfer the dollars into his bank account by selling his bitcoins/crypto using one of the crypto exchanges and then making the payment to the creditor or a collection agency.

Otherwise, the Debtor will pay his Debt & send a digital transaction to the Creditor in the blockchain network.

The Debtor would use the public key that belongs to the Creditor’s wallet address to encrypt or lock the transaction. The Creditor will decrypt this transaction using its private key matching its public key that Debtor has already used to send the transaction to the Creditor.

This transmitted transaction becomes encrypted using hashing algorithm encryption and a private key of Debtor to sign the transaction. Now, the transaction is encrypted or locked and digitally signed by the Debtor, ensuring that the transaction originates from the Debtor who is the actual owner of the transaction in the blockchain network.

The Creditor will use its private key of wallet address to decrypt or unlock the transaction.

Closing Remarks:

El Salvador is the first country in the world that accept Bitcoin as legal tender. Governments are formulating laws to adopt crypto-assets in financial streams widely.

Besides this, in May 2021, CNBC reported a seizure incident of 1.04430259 bitcoin from a hardware wallet belonging to an individual in Kansas.

Many Crypto banks are emerging in the sphere, and laws are under formulation to allow creditors to force the debtors to pay their bills using crypto legally.

References:

https://cointelegraph.com/news/crypto-assets-to-be-regulated-differently-in-the-us-potential-impact-on-industry

https://medium.com/cryptolawreview/crypto-debt-collection-c3825a8588ca

https://www.cnbc.com/2021/08/04/irs-has-seized-1point2-billion-worth-of-cryptocurrency-this-year-.html

https://www.alperlaw.com/blog/can-cryptocurrency-be-garnished/

https://en.wikipedia.org/wiki/Digital_signature

https://www.cnbc.com/2021/07/28/us-marshals-service-hires-custodian-to-hold-crypto-seized-in-criminal-activity.html

https://medium.com/technology-nineleaps/blockchain-simplified-part-1-6cc3079cfd24

Contacting a debtor through the electronic medium is still a grey area. What if all family members share the email address? Sharing collection details with another person could be taken as a violation. Even though Text messages, Emails, Social media platforms, App notifications, and SMS are the preferred mode of contact for the newer generation.

Several collection agencies have already started using electronic mediums like emails, Social media platforms, and SMS to contact debtors. In most cases, they have taken the debtor’s consent.

Getting notifications on the phone is really convenient and amicable for debtors, versus getting an annoying phone call from a debt collector, moreover, that may not be the best time to talk anyway.

• The ideal way is to take a (recorded) consent over the phone from the concerned debtor, confirming that contacting him/her through SMS or email is acceptable. These could be simple reminders when the agreed installment is due, or if a payment was missed.
• Another way a collection agency can be authorized to contact debtors electronically is if their client himself has taken consent in their initial contract with the debtor before this debt was forwarded for collections. This is called the Pass through consent.For example, your client may have this line in their agreement that was signed by the debtor –  You agree to allow us, our agents, and debt collectors to contact you by text, telephone, and email mentioned in this agreement. This single statement in the client’s contract saves everyone time and improves collection rates.

The debt collection industry is constantly under the close lens of government regulators, surrounded by strict collection laws and several opportunist attorneys who always seek an excuse to sue collection agencies over the slightest fault.

The CFPB and FDCPA (federal debt collection laws) have not changed much for decades. The electronic contact rules are still evolving and FDCPA will indeed issue more clarification around this in the future.

Therefore, collection agencies now insist that their clients (Original creditors) include a line in their legal service agreement that permits the customers to be contacted (by original creditors or a collection agency) in case of a late payment/default. Any/all contact information provided can be used for contact, including their phone number, email, SMS, or social media.

Construction equipment companies have an ongoing requirement for debt collection from businesses (and sometimes individuals) that do not pay the agreed-upon rental dues on time. Heavy construction equipment dealers, like Bobcat, Kubota Center, and John Deere, forward accounts to a collection agency after their reminders and requests to pay have failed.

An experienced collection agency with extensive commercial collections experience is a perfect choice. It is an added advantage if they have experience in consumer collections and a nationwide debt collection license.

Need a cost-effective Collection Agency? Contact Us Serving Equipment Rental Companies Nationwide

Collection fees charged by collection agencies are relatively low compared to consumer collections. Collection rates are also high, in the vicinity of 80%.

If you want to know the commercial debt collection process, click here. A collection agency will attempt to recover the debt so your business relationship with your customers is not damaged.

Here are some common billing issues that may arise in construction equipment rental and suggestions for addressing them:

1. Incorrect Billing: Sometimes, an invoice may contain errors such as incorrect rental rates, wrong equipment details, or billing for a longer period than the equipment was actually rented. To resolve this, it’s important to keep meticulous records and review invoices carefully before sending them to customers or paying them if you are the renter.
2. Late Fees and Penalties: A renter might be unaware of late fees and penalties associated with the late return of equipment. Make sure that the terms and conditions regarding late returns and associated fees are clearly stated in the rental agreement.
3. Damage Charges: Disputes may arise over charges for damages to the equipment. To avoid this, conduct a thorough inspection of the equipment both at the time of rental and return, and document any pre-existing damage.
4. Unauthorized Charges: Sometimes additional charges that were not agreed upon might be added to the bill. It is important to have a detailed contract that outlines all charges and conditions to avoid unauthorized billing.
5. Billing Cycle Confusion: There may be confusion regarding the billing cycle, especially in long-term rentals. It’s important to clearly specify whether the billing is weekly, monthly, or based on another time frame, and make sure both parties are aware of the billing cycle.
6. Lost Invoices or Delayed Billing: Invoices may be lost in the mail or sent out late, which can create disputes over timeliness and late fees. Utilizing electronic invoicing and maintaining copies of all sent invoices can help mitigate this issue.
7. Payment Terms Disputes: There may be misunderstandings regarding payment terms such as due dates, grace periods, and acceptable payment methods. Clearly define and communicate payment terms in the rental agreement.
8. Fuel Charges: If the equipment uses fuel, there might be disputes regarding fuel charges, especially if the equipment is returned with less fuel than at the time of rental. Be transparent and clear about fuel policies.

To minimize billing issues in construction equipment rental:

• Have a detailed and clear rental agreement.
• Maintain accurate and detailed records.
• Communicate openly and clearly with customers.
• Use electronic invoicing and billing systems to track payments and send reminders.
• Regularly review your billing process to identify and correct recurring issues.

In case of disputes, it is also advisable to have a dispute resolution process in place, and if necessary, seek legal counsel.