| Re: Creditworthy News
- 5/11/12 Edition
| Site: Creditworthy
| URL: http://www.creditworthy.com
| Editor: Rich Hill richh@creditworthy.com
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COLLECTIONS 101, PART 3
By David Balovich
This is the final installment of a three part article on collections.
When a customer informs us that they don’t have any money that’s usually not the case. What they really mean is that there are others scheduled to be paid before us. Sometimes customers will use the poor cash flow excuse as a ploy to gain sympathy from us to avoid payment.
Naturally, there are customers who are having difficulty and their cash flow is weak and we should be realistic in our collection efforts and acknowledge this. In many cases the customer will have other obligations they have to meet before paying creditor bills. These may include employee wages, payroll taxes, employee benefits, facility expenses, and government taxes. The challenge for the collector is in determining what customers are truly strapped for money and who is using it as an excuse.
One of the methods is to inquire about the condition of the customer’s account receivable. This is not a conversation we can have with accounts payable but rather an owner, partner, or senior manager with a corporation. It should be introduced as looking for ways to help the customer in resolving their AR situation so that they can meet their obligations and also pay their creditors as agreed. Often times the collector is unaware or forgets that counseling is a significant element of collections along with negotiation and empathy. So when the customer informs us that they don’t have any money our response should be something along the lines of “if there was a source of money, one that you have overlooked, and it could take care of our bill and perhaps some of your other obligations, would you be interested in discussing this further?
This is a pretty straight forward question and one that an owner, partner, or senior manager will have to answer with either a “yes”, “no”, or perhaps a question such as “what do you mean by that?” The last choice may indicate the customer is suspicious but it places the collector in the position to follow up with something like “we deal with this type of unfortunate situation quite often and we are pretty good at helping firms such as yours find the money to meet their obligations, and I wanted to know if you’re interested in discussing ways of handling this that you may not be aware of.” Eventually, they should respond with either a “yes” or a “no.”
If it is yes, then we know they are willing to work with us, and they are still considered to be a customer. If the answer is no, they have informed us they are not willing to work us and they have changed their status from customer to debtor.
Therefore, one of the first things we should establish in the early collection stage is whether the individual or firm that owes us money is a customer or a debtor. There are underlying traits that if we pay close attention will distinguish the customer from the debtor.
Customer traits:
Accepts our phone calls or returns them within a reasonable time.
Responds positively to our requests for information.
Talks to us about the reasons they can’t pay us.
Keeps the promises they make.
Pays our invoices, perhaps not in full but they pay something.
Our open to our suggestions.
Debtor traits:
Do not take or return our phone calls.
Never provide the information we request.
Will not give us any information as to why they are not paying.
Breaks their promises.
Write worthless checks.
Curses or screams at us.
Can’t speak or understand our language unless they are placing an order or want something.
Takes unauthorized deductions.
Makes false accusations to our superiors as to how we treated them.
There are times when we have done our best to collect but still are unable to motivate the debtor to pay us.
When dealing with a customer we should always seek assistance from within our organization. This may be a subordinate, a peer, or a supervisor. It could even be someone outside the credit and collection department. Anyone in our organization who has a good relationship with the customer and can motivate them to pay our bill. Customers should never be turned over to or contacted by anyone outside our organization for payment.
If we have identified the delinquent as a “debtor” that is an entirely different situation and the quicker we transfer the debt over to a third party the better chance we have of not only getting paid but getting all that is owed us.
When dealing with debtors there are several choices available to us. The following examples of choice are in the order of the least to the most expensive and, not surprisingly, from the least likely to produce payment to the most likely.
Pre-Collection Letter Service:
These types of collection letters come from a third party rather than us which usually conveys the message to the debtor that we are serious about getting paid. The service is usually the least expensive costing between $5 and $10 per each letter.
Small Claims Court:
Anyone can file in small claims court commonly referred to as “The People’s Court”, where attorneys are not necessary but they may appear. Court procedures vary by state and the court clerk will provide the specifics. The usual procedure is to file a one page petition with whatever documents are available to support the case for a nominal cost usually less than $100. The sheriff or constable will serve the summons upon the defendant. Both the defendant and the plaintiff appear before the judge, explain their position and present whatever documents they have to support their claims and the judge renders a decision.
The advantages are:
A low cost usually less than $100 which covers the filing fee and summons by the sheriff or constable upon the defendant.
Prompt payment by the debtor. Usually, 40% or more debtors pay once they have been served by the sheriff or constable.
Judgment by default. 25% of defendants never show up for court and that automatically provides the plaintiff a default judgment.
No attorney fees. There is no need to engage the services of an attorney.
Little time involved from filing to judgment. Most cases are set for trail within thirty days from the filing date. Most decisions are rendered at the end of trial or within one or two days after trial.
The disadvantages are:
A judgment is not payment. Once judgment is received it has to be recorded and assets must be identified to seize so that money can be acquired.
If the defendant cannot be served there can be no further action until he is found and served.
Attorneys:
A letter from an attorney can be a wake-up call to the debtor. Even when collection letters and pre-collection letters are ignored, a letter from an attorney will usually be opened. Although attorney fees can be expensive, the U. S. is a litigious country and our law schools graduate over 900,000 new attorneys annually. A good attorney can be found for a nominal fee.
Collection Agencies:
Collection agencies offer the best odds of obtaining the most net dollars even after their fees are deducted. It is always advisable to hire a collection agency that specializes in collecting debts in the industry we’re in. Often they have encountered the debtor before and know who to speak with and how to motivate them to pay.
When using a collection agency it is wise to investigate their practices, obtain references along with copies of their insurance policy and liability bond. Remember, anything that a collection agency does on our behalf we are liable for whether we approved their actions or not.
A reputable collection agency will either be a member of the ACA, American Collectors Association, or CLLA, Commercial Law League of America. It is a good idea to verify their membership if they claim to be a member of either of these organizations.
Write Off the Account.
Actually, this option can be the least expensive depending on our gross margins.
This option is only recommended when the balance is small and will cost more to collect than what is recoverable. Some firms choose to write off balances that are in dispute especially from key or major customers. The risk in doing this is we may encourage the behavior that created the initial write-off..
Whatever choices we choose, they should be made within a reasonable time, usually within the first 45 days after the due date. The longer we wait to initiate action the harder it becomes to collect.
David
Balovich is an author, business credit consultant, educator, and public
speaker and has written for the Creditworthy News for over a decade. He
can be contacted at 3jmcompany@gmail.com.
****** READER'S COMMENTS & QUESTIONS ******
If you have a comment or question regarding business credit, email us at 3jmcompany@gmail.com.
Q. Help, it appears I may have put an abstract of judgment from a small claims judgment on the wrong property although the debtor name matched. How do I rescind it? And also get it removed from the persons’ credit report? We get such little information to start with. Drives me crazy. Thanks for your help. RW
A. This is not an uncommon occurrence as judgments will usually attach to any real property in the debtors name and where the debtor name is a common name or there is more than one person with the same name then it can easily attach to more than one persons property. When filing an abstract of judgment it is preferable to use the debtors first, middle, and last name and include their date of birth, drivers license number and the last four digits of the taxpayer identification number.
To release the judgment lien contact the court who issued the original judgment and see if they have a form for releasing a lien from property. If they don’t contact the county clerk where the judgment was filed and inquire if they have such a form. If either of them do then it will be an easy process to remove the lien, just complete the form with the information requested and file the form. If the court does not have a form then you will have to create one.
The form will be filed with the county where the property is located. The document will be titled "Release From the Judgment Lien in Real Property". The document should be styled in the same manner as the original complaint or judgment so it should look something like this:
In The Small
For the County of _______,
State of _______________
Cause #
ABC Company vs. Joe Shmoe
Plaintiff Defendant
Release From the Judgment Lien in Real Property
Then include the following in the body of the document.
On the (date) day of (month), (year) the (name of
court) awarded (plaintiff name) a judgment against (debtor name) who resides
at (address, city, county, state, zip code). The judgment was duly recorded
in (name of county) records and attached to real property located at
(address, city, state, county, zip code). Such property is described in
(name of county) property records as (enter real property record description
ex: lot A, Block B, in the Western Hills Addition) you can obtain the
real property description from the county planning office or the property
tax appraisal office.
This is a release from the judgment lien described
herein of all the interests of the real property located at (enter
address)in
Enter your name and address as it was originally filed with the court, have your signature notarized and then file it with the county register of deeds.
Now, when it comes to removing the judgment from the credit report. Did you report the judgment to the Credit Bureau? I suspect you did not and the credit reporting agency obtained it from the public records, this is normally the way judgment information gets placed on credit reports. If that is the way your information found its way to the persons credit report you can not directly have it removed because you did not report it. However, by filing the release, the credit reporting agency should also report the release as well. However, it will probably not be immediate because credit reports are reported in cycles. You can provide the person whose credit report contains the incorrect information with a copy of the filed release which will allow them to dispute the information on their credit report with the credit reporting agency and provide the copy of the release as proof that it has been released. Good luck. DB
Q: We have had to let some people go recently in our department for various reasons, some due to the economy and others for cause. This has caused some anxiety among the remaining members of our department. What should we tell them and what can we tell them without violating any privacy laws? Laura H.
A: Explaining to remaining co-workers why a certain employee no longer works for the company can be a delicate issue. Employers are not obligated to give any particular explanation to co-workers as to why an employee is no longer with the organization. Whatever you choose to say, if anything at all, never lie, keep it brief, and be sure to remind others of company policy regarding privacy and gossip. In general, unless there is a compelling need to tell co-workers exactly why an individual left the organization, it is best to leave it that the individuals left to pursue other opportunities. It is simply none of the co-workers business.
DB
BANKRUPTCIES
During the month of April four publicly held companies filed for bankruptcy. The total number of publicly held companies bankruptcy filings for 2012 now stands at twenty-eight.
American Energy Resources
American Food Service Corporation
CEM Energy Services
Federal Bakers Inc
Hartwell Power Company
k & K Holdings LLC
Mid
Mizati Luxury Alloy Wheels, Inc
OSX Energy Corporation
Pinnacle Airlines
Reddy Ice Corporation
Reddy Ice Holdings
Rena LLC
Rocky Mountain Power LLC
SMF Energy Corp
Solar Trust of
Trendmark Homes Inc.
United Food Group LLC
Velo Holdings Inc
****** PROVIDER OF THE WEEK
******
NACM NATIONAL TRADE CREDIT REPORTS
http://web.nacm.org/asp_aps/Affiliates/location/mmbr_map_trade_credit_report.asp
The National Trade Credit Report is:
- Drawn from a database of over 7 million tradelines
- Contributed by over 10,000 members
- Features “Days Beyond Terms” information along with a credit score
NACM National Trade Credit Reports combines the data from 26 different NACM locations into one report. Companies that are members of NACM and report trade data, are companies like yours who understand the value of relevant trade data from other suppliers.
The most recent tradeline per NACM member is displayed in the tradeline section and then historical tradelines are trended in the next section of the report. From these trends the NACM National Trade Credit Report presents a graphical look at the percent past due over time.
BUSINESS EDUCATION SERVICES
http://www.creditworthy.com/3jm
A leading provider of indvidually tailored account receivable procedures and training materials including on-site presentations for businesses and industry credit groups
DISCLAIMER
Information provided by the Creditworthy News and Newsletter and any third party contributors and parties of interest, are provided for informational purposes only and is not considered as legal advise. Neither Creditworthy or content providers shall be liable for any errors or delays in the content, or for any actions taken in reliance thereon.
FOR MORE INFORMATION:
Creditworthy Editor:
Rich Hill richh@creditworthy.com
Creditworthy News: Dave Balovich
3jmcompany@gmail.com
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Rich Hill richh@creditworthy.com
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