Debt Recovery

Many businesses hesitate to hire a collection agency, thinking that their debtor/patient will pay their bill sooner or later. The fact is that the more you wait, the chances of getting paid drop almost 10% each month.

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

• Abuse of your written policies and procedures.
• 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).
• Disconnected phone number, the phone number has changed to unlisted, or they have blocked your number.
• Missed payments, payments becoming smaller or less frequent.
• Disputed balance, disputed the quality of service provided.
• The patient 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 an inability to pay … or you are simply not their priority to pay.

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

Say you are a collection agency, and your client (the original creditor) contacts you to tell that they have received a complaint from the debtor telling that your debt collector was very 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 if it is ok to share that recording with your client or not. 

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 that they want to see collector notes on the online portal to understand how much collection activity is going on each of their accounts, that is again tricky. Well, sharing collection notes is usually of no use because most debt collectors use short-hand and ambiguous words, which are nearly impossible to understand for normal 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 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 if there is indeed a mistake on the debt collector’s behalf, corrective steps should be taken. 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. A large number of debtors receive tax refunds in the next few months, and they will likely prioritize that money paying off your debt, especially if a collection agency is involved.

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

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.

 

The best time to assign an account to a collection agency is when the debt is right around 90 days past due.

Why?

• You have given your debtor at least three billing cycles to pay the bill and resolve any billing disputes that may have occurred.
• At 90 days your own efforts have been pretty much exhausted, and the account is clearly in the default territory. Your own staff is spending more time and energy on newer accounts that are around 30-60 days past due. 
• Paying your bill is clearly not a priority in your debtor’s mind by now. ( or your patient’s mind, in case of medical debts). Chances of recovering money are dropping every day. A collection agency will typically recover 75% of your money when the account is assigned at 90 days.
• Your internal staff is no match with a debt collector’s persistence and collection tactics. Your accounting department is unaware of collection laws that keep changing all the time.
• You can write off collection costs as business expenses in your taxes.
• Most likely your debtor likely has several other unpaid bills too, a debt collector ensures that your bill becomes their top priority. You want to get paid before he wracks up more unpaid bills.
• By assigning an account at 90 days to a collection agency, you will likely not alienate the debtor. He understands that you have given them enough time already. 
• Your collection costs are lower:  You still have enough time to send Fixed-fee collection letters that cost a lot less than Contingency-based services. By spending about $15-$20 per account, you have an excellent chance to recover your money. Collection demands sent by a professional debt collector are a huge concern for your debtor versus when you are trying to collect by yourself. They will dig in all resources to get a collection agency off their back.

It is better to recover 75% of your money rather than taking a 100% loss.

Need a cost effective collection agency? Contact us

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

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, your 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 the 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 the 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, just 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