Debt Recovery

Most customers who start missing their auto-loan installments are likely going through a very rough financial situation. Unless a car dealership (or an auto loan lender) acts fast, there is little hope of recouping the missed payments.

The involvement of a collection agency is a game-changer. Collection agencies are known to take recovery efforts to a completely different level. Their persistence, tactics, and incremental debt collection intensity ensures that your invoice becomes the debtor’s priority. All his other payment obligations become secondary.

The biggest downside of waiting is that the asset’s value (car) depreciates if a lender or a car dealer waits too long. In other words, forget about getting the interest and late fees. If the lender waits too long, he may be unable to recover the principal amount.

A record 7 million Americans are three months behind on their car payments. Their non-payment could be because of the loss of regular income or mismanagement of personal finances. There could be other circumstances like a sudden medical emergency due to the borrower’s cash reserves being depleted or even a personal issue like divorce.

Americans who fall behind these payments are generally those with low credit ratings. Individuals with low credit scores often take sub-prime auto loans with high-interest rates. But many defaults are from customers who we thought were financially well off or those with a stellar credit history. Somehow they landed up buying a vehicle that was beyond their means.

Once a customer stops making payments, starts giving doubtful excuses, or starts to ignore your payment reminders, it is important to involve a debt collections agency quickly to resolve these accounts.

It is recommended to contact a collection agency if the last installment has been more than 60 days past due. The involvement of a collection agency is a game-changer. They are experts in collecting past-due debts. The longer you wait, the harder it will get to recover your money.

Before hiring a collection agency, check if it is licensed and bonded in those states where your debtors are located. The agency should have both Consumer and Commercial debt collection divisions. The same collection agency can pursue all situations if your debtor is a person or a business (ex: company lease).

The collection agency will approach the cosigner for payments if the primary signer cannot pay.

If a debtor ignores payment repeatedly, then his credit score and FICO score start to drop, and in many cases, his car can be repossessed (well, in most states).

A collection agency can even go to court and garnish wages each month from the debtor’s paycheck.

The average transaction price for light vehicles in the United States was $37,577 in December 2018 as per kbb.com. About 4.7% of auto loans and leases were over 90 days delinquent in early 2019.

Many analysts have been forecasting that an economic recession may not be too far off. Therefore it is advisable to act promptly.

Check this page >> Cost of Hiring a Debt Collections Agency

If you are looking for a good collection agency, we can help you. Contact us if you are interested in finding out more.

CPA/Accountants are very smart people, and they are the last people who need any financial advice, definitely not us.  However, debt collection is a completely different field. We have assisted several businesses and accounting firms to effectively recover money from their past due accounts.

Accountants face numerous professional challenges in their profession, which have risen significantly in the last ten years. Attracting new clients, technology adaption, data privacy issues, outsourcing work to low-cost countries, and free tax/accounting software services have also taken away a chunk of business from many small to medium-sized accounting firms. Additionally, accounting is a field where education is an ongoing affair in form of adapting to the changing taxation laws.

Accounts receivable is an unwanted stress which comes along with the accounting profession. Without a systematic approach to your past-due accounts, these unpaid bills will quickly cut into your profit or even drive your firm towards a loss.

Attempting to use an in-house employee to collect from past due can take significant time of your staff who are definitely not experts in debt collection. Furthermore, it also deviates them from the core responsibility they have been hired for.

Collection agencies are experts in collecting a debt. Transferring accounts to a collection agency that have been past due for over 30-60 days will lead to significant savings for your business. Collection agencies through their Collection Letters and Collection Calls service can exert substantial pressure on debtors.

There is a huge difference when you send a demand yourself verses when a collection agency sends it. The involvement of a collection agency communicates a debtor that the process of collections may not just stop here, this case may be transferred to a debt collector, and eventually, the collection agency may file a legal suit as well. They may even report this debt to the credit bureaus, damaging the credit history of the debtor.

Check this page >> Cost of Collection Agency Services.

Typically collection agencies offer three types of service.
1. Collection Letters ( About $15 to $20 per account)
2. Collection Calls ( Contingency fees of about 40% )
3. Filing a legal suit ( Around 50%, but varies)

They also run “Change of Address/Skip tracing” and “Bankruptcy” scrubs for free on each account. Do not let your past due accounts impact your profit margins. Your own staff can never best the effectiveness and recovery rate of a collection agency. 

If you are looking for a good collection agency for accountants or CPA’s,  or for their clients, we can help you.

Plumbers and private contractors run into business issues all the time. However, getting paid on time for the work done is probably the biggest challenge. Plumbers often need a Line of Credit to function.

Contractors who take plumbing assignments for commercial businesses face a different set of issues versus those dealing in residential projects. Ongoing business challenges include – Increased competition from low-priced competitors, maintaining profit margins, hiring talented staff, negotiating retention, and coping with sudden material price increases.

Not only is finding skilled labor is hard in United States, but the experienced staff already on your payroll is also getting more expensive. When stepping into a home, you never know whether this owner will eventually turn out to be a good customer or not once the job is finalized.

Contractors and plumbers often run into unforeseen problems during a job that increases costs. If these expenses were not included in the initial estimate, the customer may refuse to pay the additional amount.

Cost of insurance, going through one-way contracts, and sometimes writing the job info multiple times takes time. Moreover,  fixing dripping faucets, low water pressure, running toilets, leaky pipes and clogged drains is not all that exciting. Working day-in and day out, contractors do not have much time and energy left to chase after their unpaid bills and overdue accounts receivable.

What can you do if a customer has not paid you in full even after 30-60 days since the job was completed? Not much other than making a few reminder phone calls. Let an experienced collection agency handle your past-due accounts to minimize your accounts receivable. They are experts at it and do it pretty much all day long.

A collection agency can settle these past-due accounts by prioritizing your invoice while using respect and diplomacy to maintain strong customer relations. Submitting accounts to a good collection agency on time will improve your cash flow and maximizes the chances that your small business gets paid in full for the work done.

The probability of an amicable solution decreases for accounts older than 120 days and those who have not paid even after receiving collection demands.

Collection services can perform collections in many ways:
1. Five diplomatic reminder letters send under your name.
2. Then, five collection demands are sent under the collection agency‘s name.

The first two steps are flat fee services. They are a great deal if the debt is less than 120 days old and costs between $15 to $20 per customer.

3. If all amicable efforts fail, a debt collector will call your client and try to recover the debt. This service is contingency-based, which means an agency will give you back about 60% of the amount collected and keep 40% as their service fees. Do not fall for collection agencies offering very low contingency rates, as their recovery rates will likely be lower.

Check this page >> Cost of Hiring a Collection Agency

If you are looking for a good collection agency, we can help you. Contact us if you are interested in finding out more.

Is the amount recovered by your current collection agency below your expectation or below the standard recovery rate? It is time to hire a new one, a better one.

However, firing your existing agency, here are a few things that you should ask the “Support/Sales Representative” of your current collection agency to get a better understanding of the situation. You will get a decent idea of how flexible your agency is and if there has been a lapse on their part.

1. Does your agency provide accurate “Performance Reports”

Do they have an online collections portal on which you can see debt collection performance reports? If not, request them to email/mail you a performance report showing how successful their collection efforts have been. If the results have been unsatisfactory so far, then you have just succeeded in catching their much-needed attention, and now their collections manager will watch your accounts more closely for the next few days/weeks. Did your agency offer you any kind of collection guarantee, was it accomplished?

2. Is your current agency performing all the required “Scrubs”?

Do they perform a “Change of Address” scrub? Maybe the debtor has moved from the address you provided them but did the agency try to find his new address? Your debtor may have an honest intention to pay, but since he has relocated and did not receive your invoice at his new address, he forgot to pay. Scrubs may not be 100% accurate all the time, but your agency should perform them to improve the collection results. Are they additionally doing the Bankruptcy and Litigious debtor scrubs?

3. Did the Collection Agency representative explain all their products, and did they sell you the proper service?

Were you told when to use the collection letters service and/or the collection calls service? Collections letters service is best for debtors less than 120 days past due debt.

Examining their Collection Letters Service ( Fixed fees)

4. Check the collection letters verbiage

Ask for a few sample collection letters your agency has sent out to your debtors. Try switching from diplomatic to intensive verbiage. It’s possible that you may not satisfied with their demand letter’s verbiage at all.

5. How is the print quality of their Collection Letters?

Are they sending letters with very average print quality, which may look more like junk mail than a serious demand notice? Maybe next time, you should hire an agency that sends demands in colored print so that these collection demands have maximum impact.

6. Does your collection agency print the break-up charges?

Most agencies will total up all the charges and send them for collections. Although it is ok, but not 100% desirable. For example, if a patient visits the doctor twice and owes $200 for the first visit and $100 for the second visit. If those two charges are printed on a separate line, your debtor will understand his obligations better.

Examining their Collector Calls Service ( Contingency fees based)

7. Request for a few debt collector logs

Your Collection agency will not share call recordings with you, but they should be able to provide the activity/action log of at least a few of your accounts receivable. For example, ask the agency if they can provide how many times they have called upon two of your accounts with the highest outstanding balance. Were they able to talk to the debtor or not? How long did the call last?

8. What kind of payment options does your agency offer to the debtors

Does your current collection agency has the provision to allow debtors to pay in installments? Do they accept checks? Do they have a provision to accept online payment by credit card or Western Union?

9. Do you have a Settle in Full agreement in place?

An agency will try to collect 100% of the amount, but do tell your collection agency to settle accounts in a few cases where the debtor is ready to pay 80% of the amount but cannot pay the full 100% of the amount owed.

10. Will they do Credit Bureaus Reporting if you want?

Debtors often ask during a collections call, “If I do not pay, will you do a credit reporting” or “Would this reflect on my credit history?“. If the collection agency indeed does credit bureau reporting of unpaid debts, the collector would certainly reply, “Yes, we do, if requested by the creditor“. This reply puts additional pressure on the debtor. Per the debt collection laws, a debt collector cannot use Credit Reporting as a threat, but if asked by the debtor, a collector must convey the fact.

Could “You” be behind the low recovery rates?

11. Have you been submitting accounts on time?

It is recommended to use a collection agency after 60-90 days past due, at least for the Written Demands service. If you have submitted accounts more than one-year-old, then the probability of recovery on those accounts goes down even if a collection agency is involved. Expecting good collection rates on older accounts is an unreasonable expectation.

12. Have you been providing the backup documentation promptly when asked?

Your collection agency will often ask for backup documentation from you if the debtor disputes the amount owed. This documentation is his legal right. It may include “service receipts”, signed contracts and invoices. A collection agency cannot continue until you provide this information on time.

There could be one-off factors that we have not covered. For example, some of your large value debtors may have filed for bankruptcy, and that could be causing an overall lower recovery rate. Another scenario could be that many of your debtors are untraceable even after performing the Scrubs.

There is no guarantee that the results will be better with the next one if you change your existing collection agency. However, after discussion with your existing agency, if you conclude that they are indeed not up to the mark, then surely make a switch.

We have shortlisted a few good collection agencies. Want us to connect them with you?  Contact us.

Consumer Collections Cost (B2C Recovery)

Collection agencies offer four types of debt recovery services. 

            

First two options are extremely cost effective if your accounts are less than 180 days past due. 

It is recommended to start from Step 1 (written reminders as if they are coming from you), and then gradually move to the next steps till your debtor pays. There is no restriction that you must start from Step 1. You can start from any of the Step of your choice.  

• STEP 1: Pre-Collection (Fixed Fee Service ~ $15 per account)
  In this stage, five contacts or reminders are sent to the debtor, using your company name. Although handled by the collection agency, the account isn’t officially in collections yet. Debtors are instructed to make payments directly to you. These reminders warn the debtor that if the account isn’t settled, it may proceed to collections. The service is fixed-fee, costing around $15 per account. The contacts include two phone calls and three USPS mailings over a 30-day period.
• STEP 2: Collection Demands (Fixed Fee Service ~ $15 per account)
  Similar to Step 1, but now all five contacts are made using the Collection Agency’s name instead of yours. All communications are sent via USPS mail, with no phone calls. The intensity of each demand increases, making it clear to the debtor that their account has been forwarded to collections and the situation is more serious. This service also costs approximately $15 per account, with payments still directed to you. If you choose both Step 1 and Step 2, called the COMPLETE service, the cost for all ten contacts is reduced to about $20.
• STEP 3: Collection Calls (Contingency Fee ~ 40% of the amount recovered)
  At this stage, the tone shifts to more assertive collections. A professional debt collector will begin calling the debtor to amicably resolve the debt. If necessary, the approach will become more firm within legal limits. No threats are made, but collectors know how to apply pressure to secure payment. Collection calls may continue for days, weeks, or even months, depending on the case. You receive 60% of the recovered amount, while the agency takes 40%. This is a “No recovery, No fee” service, meaning the agency only gets paid if they successfully collect. Tools like skip tracing, bankruptcy screening, and credit bureau reporting (if authorized) are used to enhance recovery efforts.
• STEP 4: Legal Suit (Contingency Fee ~ 40% of the amount recovered)
  This is the final step and is reserved for accounts that remain unpaid after multiple collection attempts, especially when the balance is high enough to justify legal action. The contingency fee for legal collections typically ranges around 40%-50%, depending on the case’s complexity.

Commercial Collections Cost (B2B Recovery)

Unlike B2C collections, most accounts of type B2B are directly handled by a debt collector specializing in commercial debt recovery.

Most commercial debts carry higher balances, B2B collection fees are lower than B2C collections. B2B is also a contingency-based collection service, costing 10% to 40% of the amount recovered. No recovery = No Fee.

Due to the complexity of collecting older debts, they typically attract higher fees. Moreover, accounts with smaller balances usually carry higher fees because they result in relatively lower profit margins for the collection agency.

You can check more about Commercial Collections here. The following table will give a rough estimate of B2B collection costs.

Note: Go for a better Agency. Not the cheapest one

Let’s do some Maths:
Collection Agency “A” charges $15 and can collect $500.
Collection Agency “B” charges $20, works harder, and collects $750.

Which one will you select?     
>> Agency “B” <<

 Collection costs of various agencies do not vary significantly, but performance does.

Some agencies genuinely charge more since
– Their services are superior.
– They hire better debt collectors.
– To not give up on your accounts easily.
– They invest in the technology to keep your and your debtor’s data safe.

Collection agency cost is a factor but not the most important one.

The location of a collection agency does not matter either; stop searching for a Collection Agency near you. Select an agency with good debt collectors, high recovery rates, and has licenses to recover in your area.