Debt Recovery

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.

Serving Breeders Nationwide Looking for a collection agency: Contact us

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.

 

Staying in business can be as simple as pulling out the steamy croissants from the oven right when the timer rings just before your bakery opens or as complicated as the daily coordination of a supply chain that involves numerous moving pieces and partners.

Preventing non-payment of bills in a B2B (business-to-business) setting can be challenging, but there are several strategies you can use to minimize this risk:

1. Credit Checks: Before offering credit to a new customer, conduct a credit check to evaluate their financial stability and payment history. This can help you identify high-risk clients.
2. Clear Terms and Conditions: Clearly define your payment terms and conditions in the contract. Make sure that both parties understand and agree to the terms before conducting business.
3. Upfront Payments: For large orders or high-risk customers, consider asking for upfront payments or deposits. This can reduce your exposure to credit risk.
4. Payment Reminders: Regularly remind customers of upcoming or overdue payments. This can be done through various methods, including email, phone calls, or mailed statements.
5. Strong Relationships: Maintain strong relationships with your customers. Open communication can encourage clients to pay on time and enable you to detect potential payment problems early.
6. Flexible Payment Options: Offering multiple payment options can make it easier for clients to pay. This might include accepting payments by credit card, bank transfer, online payment platforms, or even offering installment plans for larger invoices.
7. Escalation Procedures: Have a clearly defined process for managing late payments. This might include sending late payment notices, charging late fees or interest, or using a collections agency for persistently overdue accounts.
8. Invoice Factoring: Invoice factoring or financing allows you to sell your invoices to a third party. This can be useful for managing cash flow and reducing risk, but it does involve fees.
9. Trade Credit Insurance: This type of insurance protects your business from non-payment of commercial debt. It ensures that your invoices will be paid even if your customers default.
10. Legal Assistance: In extreme cases, legal action might be necessary. Always consult with a legal professional to understand your options.

Remember, while you can’t eliminate non-payment risk entirely, you can take steps to manage it effectively and minimize its impact on your business.

We have mentioned the challenges faced by accounts receivable before, but one item stands out as a recurring and headache-causing problem: the predictability of timely receipts.

Delays or interruptions in customer payments can jeopardize all of your downstream activities, leading to potential losses, bad credit, and, eventually, more serious consequences for your business.

Here are several key paths and practical tips to use in order to avoid payment delays and prevent cash-flow issues.

1. Trust and communication

Business is about trust, and the key to trust is communication. Having open contact with both new and longtime customers and partners is vital to building an environment of efficient collaboration and honest mutual dependency. Good communication helps focus your common interests in order to keep them attainable and helps your business adjust to crises and instability without defections and bad surprises. Interaction can help to sense the intentions of new customers, and a good communication channel with longtime customers makes it more likely that they won’t hide their cash flow difficulties. That may give you an opportunity to prepare on your end and also to address such problems together, proposing payment plans that can prevent defaults and save the interests of both parties

2. Know your business partners

New commercial relationships are always risky and full of unknowns, and even the best long-running relationships are subject to conflict and deterioration. From the very beginning, setting up a channel or a system to identify, vet, and authenticate your partners can save money and headaches in the long run.

Sometimes, communication is just not enough, and trust can be lost along the way. Treat any disputes respectfully and promptly, and don’t let your emotions control your actions.

Monitoring your customers’ behavior is important for you to be able to anticipate and avoid uncomfortable positions and breaks in your cash flow. You don’t have to resort to any obsessive, intrusive surveillance systems to do that. Just staying informed about what’s going on in the industry and keeping in regular contact with your partners is enough.

Trusting means finding where your interests meet theirs, not neglecting them. Set up processes to collect up-to-date information about your customer’s financial health where the partner liaisons and account managers can access them, and modify your Policies and Procedures to include clear guidelines on payment practices befitting the customers’ situation. Depending on the case, you can require payment beforehand or establish credit limits.

3. Know your own business

Efficient and responsible choices in payment policies are possible only if you know your business’ own needs very well. How much total customer credit can you afford in terms of account receivables? What are your essential cash needs? What are the real risks you can take? Awareness about the limits of your business will help you enforce your payment policies in a non-aggressive, efficient way and avoid unnecessarily strict payment requirements when possible.

Learn to read a balance sheet, have monthly or quarterly meetings with your sales team and accounting department, and always ask for reports on unpaid invoices. Be prepared to stop services or the distribution of products to customers that have not paid, and establish a procedure for reinstatement of service.

We’ve talked about how a low rate of accounts receivable shows your business is on the right track.  A maximum of 20% is usually what a company can withstand, but conservative risk analyses show that the cash trapped in outstanding invoices should not be higher than 8%-10% of your total business income.

4. Fix your processes

A lot of payment delays can be easily avoided by designing efficient invoicing processes.

Ensure invoices are always correct, down to the last detail, so customers don’t reject them. Sometimes customers don’t even notify you that they haven’t accepted the invoice, and meanwhile, you’re still waiting for payment. Requiring them to validate the invoicing details can be an option.

Make sure that you always follow up on unpaid invoices. Streamline the payment process so your accounts receivable department can follow actionable, clear steps such as setting up automatic reminders and diversifying the notifications (phone calls, emails, or mailed statements).

In general, any possible source of misunderstanding and ambiguity in your process has to be identified and avoided in order to prevent both unintentional mistakes and deliberate strategies by customers to take advantage of the flaws that might be in your workflow. You can also include simple expedients to encourage quick invoice payment, such as offering prompt-payment discounts. Your company can offer a 1% to 3% discount if the invoice is paid within 15 days, ensuring you have healthy cash flows every month.

An alternative would be to allow a debtor to pay in interest-free and penalty-free installments. For those businesses facing hard times but struggling to get back on track, this method not only helps them maintain their relationships but also ensures they’ll have a lower balance to pay in the future.

5. Method of payment

Many companies have switched to digital payments, but some are still using paper, which means that a check might or might not be coming. Offer incentives to your established customers to switch to ACH, credit card payment, click-and-pay or even PayPal. With an app highly rated in terms of features and user-friendliness, PayPal also offers a business account that can be connected directly to your business checking account or credit card. If you have a website where you already accept credit cards, you can add PayPal as a secondary payment method. Once you give your customers several ways to pay that bill, they’ll have no good reason not to complete the transaction.

6. Platform of payment

You have to make sure that the digital platform you’re using, whether a website or specialized software, is fast and secure. Nearly 80% of online users who have a bad experience with pages loading slowly don’t return to those pages. The rule of thumb is that they expect no more than a 3-second lapse between the click and the moment a page fully loads. Imagine one of your partners trying to make a payment when your website doesn’t load the payment page. He might try one more time and then either forget or give up in frustration. Yours is just one of the bills he has to pay and his time is limited.

There are many ways to improve the loading speed of your website, and some are technically challenging. What you can do from the very beginning is to choose a competent web hosting service for your online business profile. That only requires a little bit of research.

7. How do others do it? What should you look out for?

Always be on the lookout for new solutions to problems. Innovative technology or methods of being paid are always emerging. Traditional solutions still work as well. If a customer is in trouble, you can help them by sending business their way or asking for free products/services in lieu of their debt.

Also, it’s good to be realistic about the type of service or product you’re offering. When a business starts going badly, companies tend to slash non-essential costs first. Do you service office water coolers or offer catering for company events? Are you a manufacturer of vintage toys with a very niche customer base and very few distribution centers? The type of business you have will determine how badly hit you’ll be during an economic crisis.

Cash flow is the lifeblood of every business. Regular and on-time customer payments are key to keeping the order-to-cash cycle healthy, which in turn enables you to make well-timed investments, pay your own bills, and ensure your business’ financial health. Anything you can do to secure your cash-flow will never be too much, as long as the steps you take are within practical, legal and ethical bounds. Prevention is always better than needing a cure, and that applies just as accurately to businesses working together.

Traffic and parking violation tickets are a good income source for local enforcement agencies. Unpaid tickets can cause a huge hole in the finances of cities and counties.

If initial efforts of police and regional transport authorities to collect the fine are unsuccessful, engaging a collection agency specializing in government debt might be necessary. These agencies have the experience and tools to collect unpaid tickets efficiently.

Need a Collection Agency for Unpaid Tickets? Contact Us for a free consultation – Serving Nationwide

Courts and law enforcement agencies charge the original fine plus late penalties once an account is forwarded to collections. Some states allow them to charge an additional 30%-40% Collection Fee on top of the delinquent amount. The unpaid amount can be reported to credit bureaus if requested. Debtors can make payments online, over the phone, or using a credit card.

Some jurisdictions may allow the suspension of the violator’s driver’s license or vehicle registration if they have unpaid traffic tickets or parking violations.

Traffic police officers do not have adequate resources and time to chase people who have not paid citations, parking and traffic tickets issued by law enforcement officers. Collection agencies have advanced skip-tracing tools to find the latest contact information of debtors and employ diplomatic tactics to recover money. Forwarding these violations after 60 days to a professional debt collector for a maximum recovery rate is recommended.

Traffic ticket amounts are usually under $100, and not every collection agency will effectively dedicate the resources required to collect significant money from these accounts. Only those collection agencies with an efficient recovery process and those with extensive experience recovering for law enforcement agencies. A low-fee collection agency will ensure maximum money is recovered from unpaid traffic and parking tickets.