Debt Recovery

Inflation translates to higher accounts receivable and unpaid bills. Wage growth does not keep up with rising prices for most consumers.

Whenever there is a spike in inflation, interest rates rise. This translates to higher delinquencies for credit card bills and more people unable to pay their mortgages. Consumers divert their finances towards more necessary expenses like food and rent over other bills obligated to pay but feel they can be deferred.

Doctors suddenly see more patients defaulting on their payment plans. More people are unable to pay their car installments. A higher number of people are filing for bankruptcy. The list goes on.

Nearly 50% more people face financial problems whenever there is a significant rise in inflation. They are now paying more for food, fuel, and almost all essential things people need daily.

It is vital to recover your share before your debtor’s financial condition deteriorates further to improve your chances of getting paid during inflation. So whenever your AR is over 60-90 days past due, hire experts – Hire a collection agency.

Effect of Inflation on Unpaid Bills

1. Eroding Real Value: If there is inflation, the real value of the money owed decreases over time. This means that when a debtor pays back a bill after a period of inflation, the creditor receives money that has less purchasing power than it did at the time the debt was incurred.
2. Interest Rates: Inflation often leads to higher interest rates. If the unpaid bills carry a variable interest rate, the amount owed might increase faster due to inflation, making the debt more expensive to repay.
3. Cost of Living: For individuals, inflation increases the cost of living, as the prices for goods and services rise. This might make it more difficult for people to pay off their bills, as a larger portion of their income might be required for everyday expenses.
4. Business Costs: For businesses, inflation can increase the cost of materials, labor, and other expenses. If a business has unpaid bills, the rising costs might make it more difficult to allocate funds for paying off these debts.
5. Credit Score Impact: If individuals or businesses cannot keep up with their bills due to inflation eroding their real income or increasing their expenses, this can lead to late payments or defaults, negatively affecting their credit scores.
6. Debt Reassessment: In a high-inflation environment, creditors might be more cautious about extending credit, and may reassess the creditworthiness of their debtors. This can lead to reduced credit limits or tighter lending standards, which can affect the ability to pay bills.
7. Payment Prioritization: When prices rise rapidly, individuals and businesses might prioritize which bills to pay and may postpone or neglect payments that are not considered critical.

Many businesses hesitate to hire a collection agency, thinking their debtor/patient will pay their bill sooner or later.

Fact: The more you wait, the chances of getting paid drop by almost 10% each month.

Indications that it’s time to seek help when you observe these situations or statements.

• Your customer disregards the agreement they signed with you.
• Broken promises – “The check is in the mail,” but it never arrives.
• Unable to reach by phone with typical responses (voicemail, in a meeting, consistent non-answered calls).
• Their phone number has been disconnected or has changed to unlisted, or they have blocked your number.
• Missed payments, payments becoming smaller or less frequent.
• They start to dispute the balance or the quality of service provided.
• The debtor says, “You will get paid when I get paid”.
• Admission of inability to pay.
• A bounced check or no response.

Most non-paying debtors/patients have no money … or you are simply not their priority to pay ( A professional collection agency can prioritize your invoice).

By law, all debt collection calls initiated by a collection agency must be recorded and preserved for three years after the call date. The primary objective is to check if there was a violation of debt collection laws (FDCPA laws), and those recordings can be reviewed if needed. 

Say you are a collection agency, and your client (the original creditor) contacts you to say that they have received a complaint from the debtor saying that your debt collector was rude over the phone or felt threatened. Such complaints from debtors can get your client to worry about their reputation. The client may demand that they want to hear the recording of that collection call. The question arises: Is it okay to share that call recording with your client? 

In short: In our opinion, a collection agency should avoid sharing debt collection call recordings with their clients for the following reasons.

• This can sometimes become a regular habit for some clients.
• Sharing collection calls with clients may result in privacy/compliance issues. Please explain this to your client, and they will get it. Assure them that you will personally hear that call recording along with your compliance officer and check if indeed there was any violation. Once you hear that recording, you can transcribe it to your client. 
• You can also update your client on the collection activity made by your agency so far. This includes if the debtor was skip traced and how often you attempted to reach the debtor.
• If your client insists they want to see collector notes on the online portal to understand how much collection activity is happening in each of their accounts, that is tricky too. Sharing collection notes is usually useless because most debt collectors use short-hand and ambiguous words, which are nearly impossible to understand for average users. These notes can easily be misinterpreted. Convey them that your debt collectors do not get paid unless they collect money on client accounts, so clients should be assured that your collectors are attempting to recover the debt in the best possible manner.

Sharing your internal collection recordings or notes can cause inconvenience to you and raise other unforeseen complications.

However, if your client occasionally wants to know the status of a particular debt, do honor their request. Check with your collections team, and transcribe it for them. 

It is fair to assume that 99% of the time, a debtor feels pressured due to the firm nature of collection calls, and there may not be any violation or threats involved, as claimed by your debtor.

But corrective steps should be taken if there is a mistake on the debt collector’s behalf. Tell your client about the incident, and convey to them that appropriate steps have been implemented so that such an incident does not happen again.

Although the best strategy to assign your accounts for collections is when they are 60-90 days past due, regardless of the time of year; however, December has several additional advantages.

This is because of 2 reasons.

1. Clients who use the flat fee service can claim the cost as a business expense in taxes.

2. Many debtors receive tax refunds in the next few months, and they will likely prioritize that money paying off their debt, especially if a collection agency is involved.

Nearly all collection agencies see better than average collection rates during the year’s first quarter.

An average collection agency will recover about 20% of the total debt assigned. Some clients may get a 100% recovery rate, for others it could very well be 0%. Here are the most important factors which decide how much a collection agency will collect for you:

1. Collection Agency itself:

A collection agency that follows a friendly approach makes persistent contacts, follows legally complaint tactics, yet a firm approach will recover maximum money. They must know how to recover the debt diplomatically instead of forcefully. Debtors are less likely to pay when they feel threatened.

Since all collection calls are recorded, it is important for the management/supervisor to randomly examine at least a few collection calls daily and discuss shortcomings with their debt collectors. They must have at least a few bilingual debt collectors in order to recover from people who prefer talking only in Spanish. Their debt collectors must be located in multiple time zones in order to work with debtors nationwide.

2. Is your debt primarily Commercial (B2B) or Consumer (B2C)

Commercial debts have a recovery rate of around 75% on viable accounts. For consumer debts, this figure drops to approximately 12%. Factoring in both types of debts, the average recovery rate is about 20%.

3. Age of your debts

Accounts that are assigned around 90 days have an excellent recovery rate, while accounts that are older than one year have a poor recovery rate.

4. Your Industry

Commercial Debts: Nearly 75% recovery rate on viable debts.

These industries have a higher recovery rate: (Over 40%)
College/Universities/ Prof. School, Fuel/Oil/Propane, Printing, Lawn & Garden, Snow Removal, Business Services, Plumbing, Heating, Air, Engineering, Interior Design, Restoration, Publishing and Credit Unions.

These industries have a moderate recovery rate: ( 25%-40%)
Pest Control, Aviation, Media, Industrial, Optometrists, Dental, Personal Services, Funeral services, Repairs, Waste Management, Day Care, CPA / Accountants, Utilities, Government, Member Organizations, Farm Supply, Auto Dealers, Cleaning Service, Fire, Education Schools Misc., Telephone Communications, Elementary/ High School and Medical.

These industries have an average recovery rate ( 15% -25%)
Social Services Misc., Trucking, Veterinarian, Clothing, Manufacturing, Computer Services, Pharmaceutical, Medical supply, Drug Store, Newspaper, Rentals Equipment, Wholesale, Durable, Hotel, Non-Profit and Insurance.

These industries have a lower recovery rate: ( Below 15%)
Chiropractor, Nursing Homes, Banks, Bail Bonds, Property Management, Financial, Legal Services / Lawyers, Gym/Sports Organizations, Electronics, Moving/storage and Real Estate Agents.

5. Quality of your own debt:

If you primarily serve a lower income group, or if your state debt laws are favorable for debtors, then the recovery rate will be lower. Additionally, if your debt is too old then your recovery will decrease.

 

One of the most common questions business owners ask is: “How long should I wait before sending a past-due account to collections?”

The data is clear: The best time to assign an account is when it hits 90 days past due.

Waiting longer doesn’t “save the relationship”—it usually guarantees you will never get paid. Here is why the 90-day mark is the critical turning point for your Accounts Receivable.

1. The “Three-Cycle” Logic

By 90 days, you have likely sent three statements (30, 60, and 90 days). You have given the client a full financial quarter to resolve the issue.

• The Reality: If a client hasn’t paid after three “friendly reminders,” they aren’t forgetting—they are ignoring you.

• The Action: Sending another statement looks weak. Escalating to a third party shows you are serious.

2. Your Staff is Burning Valuable Time

Your internal team is hired to manage patient care, customer service, or sales—not to chase bad debt.

• The “Burnout” Factor: Asking administrative staff to make uncomfortable collection calls kills morale and productivity.

• Opportunity Cost: Every hour they spend chasing a $200 invoice is an hour they aren’t generating $1,000 in new business.

• Skill Gap: Your accounting department likely doesn’t know the specific nuances of the FDCPA (Fair Debt Collection Practices Act). If they say the wrong thing, your business could be sued for harassment. Pros know the law.

3. The “Decay Curve” of Debt

Time is the single biggest enemy of debt recovery.

• Statistical Drop: Research shows the probability of collecting a dollar drops significantly after 90 days. By six months, that dollar might be worth only 20 cents.

• First Mover Advantage: A debtor who isn’t paying you likely isn’t paying others either. The squeaky wheel gets the grease. If you wait, you fall to the bottom of their priority list behind the creditors who did hire an agency.

4. Change the Dynamic (Without “Alienating” the Client)

Many businesses fear that hiring an agency will ruin the client relationship. The opposite is often true.

• The “Bad Guy” Buffer: By hiring an agency, you keep your internal team as the “good guys.” You can tell the patient/client, “I’m sorry, our system automatically moves accounts at 90 days, it’s out of my hands.”

• Psychological Shift: A letterhead from a collection agency changes the tone from a “request” to a “demand.” The debtor realizes you are no longer asking nicely; you are enforcing a contract.

5. Financial Sense: Fixed-Fee vs. Contingency

Speed saves you money on the collection process itself.

• Early Assignment (90 Days): You can often use “Fixed-Fee” services (flat rate letters/calls) which cost a few dollars per account.

• Late Assignment (120+ Days): Once an account is “toxic,” you are forced into Contingency Collections, where you might lose 30% to 50% of the recovered amount.

• Tax Benefits: If the agency can’t collect, you have the documentation needed to write off the debt as a business expense on your taxes.

The Bottom Line: It is better to pay a small fee to recover the majority of your money now, rather than holding onto the debt and taking a 100% loss later.

Ready to stop chasing and start collecting?

Contact Us Today to discuss a strategy that fits your timeline.