Debt Recovery

With so many people moving across America, storage warehouses are in great demand. However, many customers do not pay their balance on time, leaving the storage unit’s rent overdue by many months. Most customers who do not pay their dues know that the value of goods inside the storage unit is not worth paying the accrued rent.

The staff of self-storage warehouses is not trained to go after delinquent customers professionally, nor do they have time or access to the tools needed to trace the person. Several complex legal laws are involved, even when you want to collect your own money. Consumer protection laws can be very tricky and vary by state. A single litigious can do sufficient damage to your business.

Auctioning the goods inside the unit is an option; however, it is tedious.
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The involvement of a collection agency changes the perception of your delinquent customers. They would rather pay to avoid all the collection hassles they will experience in the coming days. A collection agency can even report this unpaid debt on credit history, which can have severe implications for the consumer.

Sending low-cost written demands followed by collection calls under the name of a collection agency is the perfect way to make those unresponsive customers start paying.  If that does not work, a series of collection calls by a professional debt collector is initiated.

Assigning an account to a collection agency when the customer is 90 days past due will substantially reduce your account receivables.

You should not hire a local collection agency, instead hire one which is licensed to collect bills nationwide. Many of your customers could have crossed state lines, and your local collection agency cannot pursue these accounts. Hiring a collection agency with a nationwide license is pretty much a requirement for storage and moving companies.

One of the most common issues is when customers delay their payments. To mitigate these problems, self-storage warehouses should have a well-defined credit policy, employ efficient tracking and billing systems, and engage in regular communication with customers regarding their accounts. It is also beneficial to periodically review accounts receivable practices and make necessary adjustments to minimize risk and improve cash flow.

Have you mistakenly overpaid your employee or a contractor who refuses to return that money?

• Did you sponsor higher education for your employee with a commitment to work with you for a few years, but he resigned right after completing the degree?
• Did they sign a contract stating they would pay back the training fees if they didn’t work for a specific duration?
• Other circumstances where an employee can owe money to his employer include – overpaid salary, excessive travel expenses, misuse of company credit card, unreturned company equipment like a laptop or excessive reimbursement claimed.

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A collection agency can work with your employee professionally and legally to ensure that you get your money back. Their recovery efforts will include sending demand notices and calls from a professional debt collector. If the amount is substantial or litigious, they will forward it to an experienced attorney.

Often the employee becomes unreachable or unresponsive to the employer’s contacts. They often change their address. A standard practice among all good collection agencies is to use the Skip Tracing service to find out the latest whereabouts of the debtor or the offender. A collection agency is not a replacement for police; they only act to recover the debt legally. They can report the debt to credit bureaus like Transunion and Equifax if the creditor/employer instructs them. It is crucial to maintain proper documentation to avoid getting sued by your ex-employee in cases like these. An employee debt collection agency will follow all federal and state debt collection laws to recover all unfair reimbursements and money owed.

Recommendations:

Document the Overpayment: Create a clear record of the overpayment, including details like the amount, the reason for the overpayment, and any relevant policies that were not adhered to.

Listen to the Employee’s Perspective: Allow the employee to share their side of the story. There might be information or circumstances you are not aware of, and it’s important to consider all sides before taking action.

Final Internal Communication: Before involving a collection agency, it is often best practice to send a final communication to the employee outlining the outstanding overpayment and your intent to involve a collection agency if the matter is not resolved.

Provide Documentation to the Collection Agency: Supply the collection agency with all relevant documentation regarding the overpayment. This should include any communication you’ve had with the employee regarding the issue.

Simple Answer: Once the unpaid debt entry hits the credit report, the fear of not paying in the debtor’s mind is gone. You just used the most effective debt recovery tool before giving the debtor enough time to settle the unpaid.

The debtor thinks, “Well .. this is the worst scenario ..  then why should I even bother paying now?“.

Even if he makes payment later, the entry stays there (as paid), still negatively impacting his credit score for the next seven years. If a credit report entry is done too soon, it in fact discourages many debtors from making payments. Do not rush into credit reporting. Use it wisely.

Some debt collection agencies agree to remove the entry from the debtor’s credit report once the bill is paid, but this is not common. Offering the removal of a genuine credit report entry in exchange for payment is considered a highly unethical practice among credit reporting agencies and the accounts receivable industry. The provision to remove credit report entry was allowed only to fix mistakes and not to be used as a tool for debt collection.

Credit reporting agencies (Equifax, Experian and Transunion) may forbid a collection agency if this violation is caught multiple times. Also, removing an actual late payment from the credit report risks those lenders who might give a loan to this person in the future.

Most experts in this industry recommend that credit report entry be done after all debt collection means have been exhausted and the debt is more than 180 days past due.

Only medical credit report entries are an exception. Once the patient or his insurance company pays off a debt, it must be removed from the credit report. However, by law, they cannot be reported before one year. Once paid, all debts are marked as paid in full on the credit report and not deleted entirely.

Creditors and collection agencies who prefer to do credit reporting quickly will likely see lower recovery rates. The fear in the debtor’s mind is gone.  However, collection agencies that delay credit reporting keep this valuable tool for later use.

Although creditors and collection agencies can pursue legal means of debt collection like garnishing wages, placing a lien on the property, or freezing the debtor’s bank accounts, not more than 20% of debts qualify for legal action, either the low balance or the complexity of the case.

The debt collection industry has been through one of its most difficult periods in modern history, and the recovery looks slow and prolonged. A national and, at the same time, a global recession has been caused, not by financial crises, but rather by an unexpectedly devastating health issue. This is a time to show resilience and learn what we can in order to protect ourselves in the future.

Performance of Collection Agencies during Covid-19 Pandemic Economic downturns create a huge opportunity for the debt collection industry. A large number of creditors are stuck with unpaid invoices, and as their own efforts fail they tend to submit more accounts to collection agencies. However, during the recession, even the collection agencies find it hard to recover money as people have no funds to pay off their bills. However, as the economy starts to turn around, collection agencies are able to perfectly time their recovery efforts to maximize the chances of successful debt collection to ensure that their clients are the first ones to be paid. During peak Covid-19 duration (May-Nov 2020) many states prohibited debt collection for several months. Recoveries dropped to a mere 50% of the normal levels. It was the worst time for collection agencies in decades. Many agencies had to shut down during this period. The turnaround came the following year, during tax refund season as the debt recovery levels went up substantially ( March/April 2020). Additionally, the government-assisted stimulus packages resulted in recovery rates jumping by almost 1.5 times than normal, because people wanted to pay off their debts with this extra cash. Collection levels will stabilize to normal levels only after the Covid-19 problem completely subsides.

Given its unprecedented scope, how can we access the resources at our disposal and organize our industry’s practices and decisions in a way that would enable us to survive and recover sooner rather than later? Looking at the two major crises in the last century, the Great Depression and the Great Recession, we can use the traditional route of analyzing both pre-and in-crisis data, to identify which receivables can be collected with a higher success rate and focus our efforts there.

Reporting information to build a reliable database

One of the difficulties in accessing that data is the reporting of consumer information by creditors and by debt collection agencies, themselves. The number of those actually furnishing payment information to the consumer reporting agencies has decreased in the last 10 years. A report released by the Consumer Financial Protection Bureau placed the number of reported payments on credit card accounts at 40% in 2020. In 2013, it was at 88%. The Bureau estimates that, as of 2020, ‘only about half of issuers with recent payments furnish these data’.

There may be several factors driving this decline, but what it boils down to for us is the unavailability of reliable information in terms of assessing the number of consumers that made payments, the number of accounts being paid and the speed at which their outstanding debts were being paid. Given this problem, we have to look elsewhere.

A boom in unchecked credit precedes economic crises

It’s generally accepted that ‘the more credit intense the expansion years preceding a crisis, the more severe the recession and the slower the recovery’ (Household Debt and Economic Recovery Evidence from the U.S. Great Depression, EHES Working Papers in Economic History | No. 36, p.4, March 2013). Now we know that before the Great Depression, there was a credit boom accompanying the economic expansion of the 1920s, where banks and financial intermediaries competed to extend credit for consumption and investments. As everyone tried to get a piece of the pie, investments became riskier and regulators turned more of a blind eye, caught in the euphoria of the boom, until the economic bubble began to contract due to non-viable financial choices that were economically unsupported long-term. The widespread, large volume of those financial decisions dragged down a vulnerable system, where consumer and commercial credit had been offered with no restraint.

The Great Recession of 2008 follows a similar pattern, where the domestic credit and subsequent debt in the financial and non-financial sectors increased significantly before and during the crisis. Financial institutions and regulators seem to have still a hard time establishing preemptive policies and controls to prevent recessions, from minor to devastating, from occurring.

What’s also interesting about financial and economic crises is which industries seem to recover time and again, where innovation is coupled with bold investment choices or sweeping reforms that draw from the strengths of previous solutions. The automotive industry is a fascinating example of stubborn efforts and reliable reinvention decade after decade.

US economy before and during Covid

Before the Covid epidemic, US credit levels had been increasing for several years, accompanied by an increase in delinquencies. Excessive borrowing and already vulnerable sectors of the economy might have led to another man-made financial crisis eventually, but the virus cut that transition short quite violently, sending shockwaves through the entire world. Even industries that were doing well, such as commercial construction, transportation, biopharmaceutical research and development, found themselves forced to overhaul their operations at an unprecedented cost. In November of 2020, some Harvard economists calculated that the pandemic would cost the US at least $16 trillion, provided it ended by the fall of 2021.

The levels of employment started spinning down at the beginning of 2020 with some industries hit so badly, it’s hard to believe they’ll take less than a few years to recover. For example, consider leisure and hospitality workers, whose employment fell by over 20% compared to 2019, or book retailers and news dealers, who recorded a 48.9% drop from 2019.

Source: US Bureau of Labor Statistics

These are industries where debtors will be hard-pressed to find money to pay debts for no other reason than that they are unemployed. They are, by no means, exceptions. The reports of the US Bureau of Labor Statistics provide a discouraging image of the levels of employment in 2020. There are a few industries that recorded positive percentages when compared to 2019, but they are rare: warehousing and storage, gardening and residential construction, software publishers and credit card issuers, and a few others.

It’s worth noting that credit card issuers and real estate credit maintained or increased their employment levels, due to continued demand for credit, but commercial banking and consumer lending decreased their payrolls.

A focused approach to keep costs down and maximize receipts

The next 6 to 12 months are going to be an uphill battle for creditors. As the economy improves, following vaccinations and easing of restrictions, recoveries for creditors will start going up as well. Until then, the focus of collection efforts needs to be on those consumers who are in the least-impacted industries. The important factors to look at are: ratio of debt to income, a history of debt repayment, occupation, likelihood that they’ll file bankruptcy (see bankruptcy demographics), family size, and employment status.

It’s good to remember that these are not infallible guides, but they help make sorely-needed predictions. Income, for instance, is not a totally reliable indicator of a consumer’s willingness to pay debt. In some cases, consumers with higher expendable income may maintain debt for longer periods of time specifically because it takes up a smaller percentage of that income. Those whose monthly credit card payments are only 20% of their income might be more comfortable with that debt. On the other hand, consumers with lower income, whose monthly credit card payment bites painfully into their short-term individual or household income, at around 30%-40%, may feel more inclined to resolve their debt situation, even if it means taking out a loan, or making low, but consistent, payments every month. Obtaining current information about a given consumer will help a collector evaluate and compare them to other collection opportunities.

In addition, debt collection rates vary widely from state to state. The population of the Southern states seem to have the hardest time paying off their debt, according to this interactive map about debt in America, last updated in March of 2021.

With many debt collection agencies having shut down and others operating with fewer staff and less financial resources, wasting time and money on chasing random debtors may be the last nail in the coffin for some agencies’ profit margins. Breaking down your portfolio of delinquent debts into categories based on the information here may help optimize your collection efforts and accelerate cash inflow.

Debt collection agencies in PR include TSI, Kinum, CICA, ILCA and Professional Recoveries. Spanish and English-speaking debt collectors are required for Puerto Rico debt collection.

Debt collection is a complex task, but what can you do when your recovery efforts take you to non-contiguous territories of the United States, like Puerto Rico? You need local debt collectors!

Nosotros cobramos sus cuentas morosas Need a Collection Agency (Agencia de cobros) in PR? Contact us

The first thing to remember is that the FDCPA applies there like anywhere else. The CFPB has the authority to stretch its long arm as far as the most remote corner of the United States and its territories to supervise and audit local banks, credit unions, payday lenders, debt collection agencies, and more.

This also means that conventional and litigious collection efforts also work in Puerto Rico much like in the rest of the U.S. Skip tracing, employment and asset tracking, locating real and personal property, investigating liens, judgments, and corporate filings with the local Secretary of State, are but a few of the methods used to recover your receivables.

The FCRA-mandated credit reporting period is the same in Puerto Rico: 7 years for debt, and 10 years for bankruptcies, but note that Puerto Rico has its own statute of limitations for filing lawsuits to collect debts: 15 years. The island also specifies prohibited practices for collection agencies on top of and more restrictive than those in the FDCPA, such as this one:

…No collection agency shall: (1) Carry out actions for collection for in relation to accounts, bills or debts for which it has not been previously authorized in writing by the client. (P.R. Laws tit. 10, § 981p)

Puerto Rico is one of the states that regulate the collection of fees and interest. No collection agency can add collection fees onto the debtor’s outstanding balance even when the agency incurred those charges while doing business related to that debtor (10 P.R. Laws Ann. § 981p (12)). All that being said, in Puerto Rico interest is allowed on money judgments at a rate of 6%.

While the rules and regulations governing debt collection in Puerto Rico are familiar, with only a few exceptions, Covid 19 has presented a special set of problems for regulators, creditors and debtors alike. The unemployment rate on the island skyrocketed last year, and it was already high before the pandemic, with 36.2% of the inhabitants unemployed. After the pandemic started, that number more than doubled.

The state’s payment delinquency rate continues to be higher than on the mainland and, in fact, is among the highest across the entire United States. It didn’t recover as quickly and significantly as it did after the 2008 crisis, nor as much as other U.S. territories did, and the damage caused by Hurricane Irma and then Hurricane Maria in 2017 was estimated at more than $90 billion.

One of the challenges faced by creditors maybe not just that debtors are unwilling and unable to pay but that, long-term, they simply can’t keep up with the payments. While this is not a rare occurrence in this industry, the problem with Puerto Rico’s debtors, just like those in other hard-hit territories of the U.S., is that they probably have little to no resources available to mitigate the default. If they stop making payments as part of long-term payment arrangements and then the creditor pursues a wage garnishment, then it’s still possible the wages may not even be high enough to garnish. It’s reasonable to assume that many families would apply for garnishment exemptions, leaving creditors with millions of dollars in uncollectable receivables until the overall financial situation of the island’s inhabitants improves enough that there’s finally something to collect.

Like in the United States, consumers in Puerto Rico can file for bankruptcy if they are unable to repay their debts. Bankruptcy can provide a way to discharge certain debts or create a repayment plan.

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Unpaid invoices are pretty common for animal breeders and semen distributors. Sometimes, repeated follow-ups with your customer do not help, and your past-due accounts receivable start to dig into your profits.

Breeders are forced to assign past-due accounts to a debt collection agency. The involvement of a third-party agency does the trick. The moment your customers realize that the recovery is now handled by a professional collection agency, the entire tone changes.

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Bad Debts: This is especially concerning for distributors and breeders as the product they are dealing with is perishable and has maintenance costs (e.g. storage of frozen semen).

High Costs of Preservation: The preservation of animal semen requires proper storage conditions which can be costly. If the payments from the customers are delayed or not received, it can be hard to maintain these conditions, affecting the quality of the product.

Seasonality of Demand: The demand for animal semen might be seasonal, especially when breeding livestock. This seasonality can make it difficult to predict cash flow and can exacerbate AR issues if the company doesn’t plan for the slow periods.

Collection agencies are experts, they know every law and resource required to recover unpaid bills. They know how to collect money in an amicable and diplomatic manner while attempting to preserve business relationships.

It is crucial to select an agency with experience recovering specifically for breeders. It does not matter what specific animal you deal with (pig, bull, horse, swine genetics, cattle, etc.). Rather than writing off unpaid invoices as bad debt, it is highly recommended to hire a collection agency.

Most agencies will work on contingency-based fees only.

Collectors love working for Semen Distributors, Breeders, and the Egg industry because of the high recovery rates they achieve as compared to other businesses.