Debt collections can be quite boring and frustrating if too many customers fail to make payments on time and your staff has to repeatedly chase them for making their past-due payments. Bigger challenges arise when some of the following issues additionally complicate the recovery efforts.
1. Debtor not traceable:
Every business struggles with lack of current contact information of their debtors for many past due accounts. May be the debtor has moved from his current residence or your employee did an incorrect entry while typing the data into the system.
The USPS maintains a database of people who have recently moved. You can request the USPS to inform you of the new address of a person by using USPS ancillary service endorsements.
Use a professional Skip tracer service. Skip tracing provides current residence or business address of any individual, includes phone number where available. Advance Skip tracing are costly and for a single account check they can charge anywhere between $25 to $200 per account.
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 benefit of volume discount. They get this service for pennies on the dollar.
2. Handling accounts that are no longer in business or have filed for bankruptcy
Creditors cannot try to collect on debts that were discharged in bankruptcy. Even if a debtor simply files for bankruptcy even then the debt collectors are not allowed to continue collection activities while the bankruptcy case is pending in court.
How to find if someone has filed for Bankruptcy?
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.
Well, simply hire a Collection Agency and 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.
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.
Go to the Small Claims court and get a judgement against the debtor, this may include wage garnishment. If you are lucky, you may get a default judgement if the debtor fails to appear.
Hire a professional collections agency and let them do all this work for you. They have very good systems and software in place to periodically contact the debtor.
4. Government Regulations:
Did you know that 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 to put unreasonable pressure on debtors. Not following these debt collection laws and regulations can result in getting sued back by the debtor.
Have your in-house collection specialist keep himself up to date with laws which are applicable to the original creditors too.
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 United States. In case of a mishap (a lawsuit occurs from the debtor’s side), they are fully insured for such situations to protect them self and their clients from a financial loss.
5. Training Staff
No one likes calling people again and again and insist them to pay. Invoicing people regularly and following up with them after the past-due date requires tremendous patience, discipline, process in place and training. As the 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 just because no one is keeping a proper check.
Debt collectors are people with great patience and have too many ideas on how to legally recover money. That’s what they do all day long. They 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.
Find a friend or an employee who can speak the language of your debtor. Explain him what to talk and how to respond.
Transfer the account to a collection agency which 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.
On the brighter side, millions of people receive tax refunds, this may include some of your debtors too. Make sure you re-send 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, that 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 its time for a procedural change.
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 which 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 future after their situation improves. They can potentially spread a negative word about your business in the community or online.
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.
The staff of Debt Collection Agencies are very 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.
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 Collections Calls service for accounts over 120 days past due.