Debt collections can be quite frustrating and boring if too many customers fail to make payments on time. Your staff has to contact them repeatedly to pay their past-due bills. More significant challenges arise when some of the following issues complicate recovery efforts.
1. Debtor is not traceable:
Every business struggles with the lack of current contact information of their debtors. May be the debtor has moved from his current residence, or your employee made an incorrect entry while typing the data into the system.
Solution 1:
The USPS maintains a database of people who have recently moved. You can request the USPS to inform you of a person’s new address by using USPS ancillary service endorsements.
Solution 2:
Use a professional Skip tracer service. Skip tracing provides the latest residence or business address of any individual. It will also include the latest phone number if available. Advance Skip tracing services are costly, and for a single account check, they can charge anywhere between $25 to $200 per account.
Solution 3:
If you intend to transfer the account to a Collection Agency, they will do it for free as a part of their collections process. They pay a huge amount to professional skip tracers every month and get the volume discount benefit. They get this service for pennies on the dollar.
2. Some accounts may no longer be in business or bankrupt
Creditors cannot try to collect on debts that are discharged due to bankruptcy. Even if a debtor simply files for bankruptcy, the debt collectors are not allowed to continue collection activities while the bankruptcy case is pending in court.
How to find out if someone has filed for bankruptcy?
Solution 1:
Go to: http://www.ncmb.uscourts.gov/content/how-can-i-verify-if-someone-has-filed-bankruptcy
* If you have a PACER account, you can search using the PACER Case Locator.
* You can visit the courthouse and use a public terminal.
* If you know the social security number, you can use the VCIS system. It’s a toll-free call to 1-866-222-8029. See VCIS instructions here.
Solution 2:
Well, simply hire a Collection Agency, they will check it for free as a part of the standard collections process.
3. Debtor Excuses
We have a detailed article on the excuses made by debtors, a pretty interesting article. It will give you several ideas on how to handle all those excuses.
Solution 1:
Instruct someone in your Accounting/AR employee to keep checking with the debtor frequently. The debtor will likely pay when he realizes that collection demands are not going away any time soon.
Solution 2:
Go to the Small Claims Court and get a judgment against the debtor; this may include wage garnishment. If you are lucky, you may get a default judgment if the debtor fails to appear.
Solution 3:
Hire a professional collections agency and let them do all this work for you. They have excellent systems and software in place to periodically contact the debtor.
4. Government Regulations and Laws:
Did you know that the government has many laws which need to be followed when attempting to recover money from a person? In many states, these restrictions apply to the original creditor as well. These laws are designed to prevent Creditors/Collection Agencies from putting unreasonable pressure on debtors. Not following these debt collection laws and regulations can result in getting sued back by the debtor.
Solution 1:
Have your in-house collection specialist keep himself up to date with laws that are applicable to the original creditors too.
Solution 2:
Use a collection agency. The staff of a collection agency is well-trained to follow various Federal and State laws. Check out the Debt Collection Laws in the United States. In case of a mishap (a lawsuit occurs from the debtor’s side), they are fully insured for such situations to protect themself and their clients from a financial loss.
5. Training Staff Regularly
No one likes calling people again and again and insisting they pay their bills. Invoicing people regularly and following up with them after the past-due date requires tremendous patience, discipline, training and a process in place. As time passes by, the debtor gets pretty immune to those reminder notices. Make sure your staff even keeps a regular check of clients who are past due. These cases should not slip away because no one is properly checking.
Solution 1:
Debt collectors are people with great patience and have too many ideas on how to recover money legally. That’s what they do all day long. Debt collectors are regularly trained by their employers (the Collections Agency).
6. Language barrier
Are all your customers English speaking only? Do you have a bilingual staff who can speak their language? Small businesses and medical professionals often serve people whose primary language is either Spanish or Mandarin.
Solution 1:
Find a friend or an employee who can speak the language of your debtor. Explain to him what to talk about and how to respond.
Solution 2:
Transfer the account to a collection agency that employs multilingual staff. Spanish-speaking debt collectors at the minimum.
7. Tax season
Tax filing season ( March to April) is notoriously bad for debt collections. Many people must pay IRS those unexpected taxes or fines.
Solution 1:
On the brighter side, millions of people receive tax refunds. This may include some of your debtors too. Make sure you re-send the invoice during this period as they may clear your bill finally from the extra money they just got back from the IRS.
8. Verification of debt
Debtors often ask Creditors/Collection Agencies to provide all documents related to the debt, which proves the debtor indeed owes the money. Failure to provide adequate documents will lead you to write off this debt. If it takes too long to locate debtors’ data and you have to go through the bundle of files, then it’s time for a procedural change.
Solution 1:
Of course, your AR team should keep documentation properly. If too many physical documents or paper-based files are making your office a junkyard, consider storing documents electronically. There are several companies that help you store documentation safely and well organized. Finding the electronic version of a document will be a huge time saver.
9. Maintaining positive customer relationships
Most businesses do not want to lose customers or aggravate them just because they have failed to make payments this time. They may give more business in the future after their situation improves. They can potentially spread negative word about your business in the community or online.
Solution 1:
Instruct your staff to deal with debtors diplomatically and with respect. Even if they feel frustrated at times, it is better to end the call that very moment on some pretext, rather than continue to talk and yell at each other. Calling up at a different time could very well be fruitful as your debtor’s mood may be more cheerful.
Solution 2:
The staff of Debt Collection Agencies is well-trained to deal with debtors diplomatically. Try sending Collection Letters first, as they are the best way to maintain better relations with your customers.
10. Pause Collection Activity when the Government notifies
During the coronavirus pandemic, several states prohibited debt collection activity in their states. Similarly, when hurricanes, wildfires, earthquakes, floods or tornados arrive in a region, collection activity needs to be paused. To keep track of all such events, a collection agency must be on the lookout for these notifications.
Hiring a collection agency
Collection Agencies have been around for decades and recover billions of dollars every year for their clients, which would have otherwise resulted in a 100% loss. Collection agencies subscribe to several services like Skip Tracing, Bankruptcy Screening, etc which you would be reluctant to buy. You can never match the cost and efficiency of a collection agency. It is recommended to use the Collection Letters service for accounts less than 120 days past due, and the Collections Calls service for accounts over 120 days past due.