Accounts Retrievable Systems - Collection Agency vs Lawsuit
If all you have to do to collect overdue payments from a delinquent debtor is sue them, they why doesn’t everybody sue? The short answer is that lawsuits aren’t always necessary, they’re expensive, and time consuming. You will likely be able to recover a large majority of your debts without having to resort to a lawsuit.
Rather than sue a debtor who refuses to pay you back, you can hire a collection agency. Collection agencies specialize in getting non-paying parties to repay what they owe. As service providers for your business, collection agencies can also help you in determining whether or not a lawsuit is the right option at the right time.
Another important factor in choosing a collection agency over a lawsuit is the service collection agencies can provide you. On such service is “skip tracing”. To sue a party, you need to serve them with a summons. Attorneys don’t generally specialize in finding debtors who’ve left town without a trace.
However, collection agencies are equipped to do just that. Once they find the delinquent party, then perhaps you may wish to pursue legal action. Short from that, you still need to know where your debtor is before you can serve him or her with a summons.
The legal system itself is not a fast moving entity. As time passes, your chances of being paid back reduce drastically. After 90 days, your chances drop significantly. The legal process allows for a lot of time to pass between each phase. Therefore, a lawsuit can take well over 90 days to progress. Rather than waiting all this time, you’ll find hiring a collection agency before the 90 day drop-off period significantly increases your chance of being repaid.
Before you resort to a lawsuit, you’ll find hiring a collection agency to be a better starting point in debt recovery. There are cases when hiring an attorney becomes necessary, though. If the debtor is especially stubborn and you’re not able to collect on the debt, then turning to a collection attorney may be your only resort.
At this point, the debt is likely way past the 90 day drop-off point. In some cases, if you’re already starting with a high debt that’s extremely late, you may wish to go ahead and start with an attorney right away and forgo hiring a collection agency. These cases will likely be few and far between, but they may exist.
By using an attorney to file a lawsuit, you significantly increase your chances of debt recovery significantly increase. Once the lawsuit produces a judgment against a debtor, there are many ways you can recover the money owed you. In most (but not all) states, the lawsuit will allow you to garner wages to collect on the debt. You may also be able to seize liquid or non-liquid assets from the debtor to alleviate the debt they owe you.
Overall, your first recourse in debt recovery should more than likely be to use a collection agency. They’re quick and effective. For the stubborn debts that just won’t get paid, you may need to resort to a lawsuit.
Accounts Retrievable Systems - Collection Agency Fees
Collection agencies are in the business to make money, so they’re going to charge you fees for their services. You’re in the business of getting paid for the services and products you provided your delinquent customers, so you’ll find you may need to pay for the services of a collection agency.
When you do hire a collection agency, you’re going to want to be aware of how the fees work. Collection agencies have a variety of ways of charging for the work they do. One way an agency might collect a fee is through “debt buying” where the agency purchases the debt in whole from the original creditor. The agency purchases the debt for a significantly lower amount than the debtor owes, and the original creditor gets to write off the loss on their taxes.
Once an agency purchases the debt, they go after the debtor and attempt to collect the debt, keeping the amount collected. Generally larger corporations sell their debt. Smaller organizations may find they’ll save more money by hiring an agency to collect rather than selling the debt.
Collection agencies vary greatly in their fee structure and policies. Some charge a simple flat rate for their services. Others charge a percentage of the debt collected.
While flat-rate collection agency fees may seem enticing at first, you should be very careful when considering a flat-rate agency. You may find the actual services you receive for you “small” flat-rate are far less than you originally envisioned when you hired the company. For example, you may pay a small fee and all the collection agency does is send out a specific number of letters to the debtor. That’s it. If the debtor doesn’t pay, you’ve paid for the service they’ve provided. Nothing else happens and you’re still stuck with an unpaid debt.
A flat-rate agency has no further incentive to work on your behalf once you’ve paid the fee and they fulfill their contractual agreement with you. Why should they bother?
You may also find a flat rate agency will provide only a specific set of services for a flat fee and then the additional services, which are very likely required, will cost more than originally anticipated. Of course, you’ll then find that the percentage of creditors needing these pricey additional services is much higher than you thought – and you’re among those in that percentage.
Another fee structure is the percentage-based collection agency fee. In this case, the collection agency charges a percentage of the amount collected as their fee. Since the agency’s very existence depends on their ability to perform and collect on your debt, you’re much more likely to get the full range of services from a percentage-based agency than from a flat-rate agency.
Be careful in choosing a percentage-based agency, though. You may be tempted to select an agency with a lower recovery rate because their percentage is lower. In the final analysis, however, you will very likely find the more expensive agencies with higher recovery rates will actually bring in more money than the less expensive agencies.
Carefully choose your collection agency and let the fee structure be secondary to your selection. Avoid flat-rate agencies unless you’re certain the services that agency provides for the fee are exactly what you need and no more. Don’t be afraid to go with a more expensive collection agency if they have a higher recovery rate. You’ll end up with more of your debt repaid that way.
Accounts Retrievable Systems - Looking For A Collection Agency
Collection agencies, as a whole, don’t necessarily have the best reputation as business entities. In fact, you’d be hard pressed to find any individual or business excited about the possibility of being contacted by a collection agency.
Often, even having an overdue bill sent to a collection agency is enough to entice a would-be “ne’er do well” to see the light and pay back what they owe. While such a reputation might be a good thing (as it gets the delinquent party to repay), there is also a negative side to this reputation.
As a reputable business, you want to ensure that other businesses you use to represent you are also reputable and have a good standing in the business community. It’s a fact. Businesses you hire to represent you also reflect upon you – whether that reflection is positive or negative. You want to keep that image as positive as possible.
Therefore, one of the major factors you should consider when looking for a collection agency is reputation. You want a collection agency that has a solid reputation in the business.
Another major factor is experience. You don’t want to hire a collection agency that’s going to fumble the process and leave you out of the money owed. You want an agency that has a proven track record of getting the job done and deliver to you the expected performance.
Methodology is also important. When investigating a collection agency, ask what kinds of communication methods they use to contact the delinquent party. Do the use mail? Ask to look at the various form letters. Look at their phone scripts to see how the agency will be speaking to your overdue debtors.
Does the agency “do its homework” on each of the debts they work to collect? How thorough are they in understanding the details behind the debt and the relationship between you and the debtor? The more detail oriented the agency is, the more likely they’ll be able to handle the debt collection effectively.
Individual debtors will sometimes “skip town” by moving from one geographical location to another to avoid repaying a debt. The term for finding these individuals is called “skip tracing”. Check and see if the agency you’re considering has a way to “skip trace” these delinquents. If so, find out how they do it and how effective their method is.
Some states require a collection agency to be licensed in that state to practice. Make sure the agency you chose is able to collect from the parties in the states from which you need debt collected.
Along with licensing, a collection agency should be insured. An insurance policy collection agencies can obtain, An Errors and Omissions Liability Insurance Policy, can protect not only the agency itself, it can also protect you. This policy protects the collection agency and you from debtor lawsuits. Debtors may sometimes decide to sue for imagined harassment. Check to see if the agency you’re considering has an up-to-date policy.
Shop around before you make a decision. If possible, visit the collection agency and talk to them to get a better feel for how they work. Definitely ask for references. You want your experience with a collection agency to be a good one, so make sure you consider your decision well before making it.
Accounts Retrievable Systems - Debt Collection Process
There are two aspects of the debt collection process. There’s the creditor-process and the debtor-process – depending on the “point of view” of the party involved in the process. Both sides should not only be aware of the process that directly affects them, but they should also be aware of the process concerning the other side.
Various state and federal laws govern much of the creditor process. The primary federal law governing debt collection practices is the Fair Debt Collection Practices Act. Reputable debt collection agencies will follow the rules provided by this law. The government can severely penalize any collection agencies who fail to follow the codes specified by this Act.
State laws primarily govern items such as timelines where the debt collection agency is allowed to perform such actions as take the debtor to court, etc. Likewise, state laws might govern certain practices pertaining to contacting the debtor. For example, some states don’t allow the collection agency to contact anyone except for the specific person owing the debt. This means if that person’s spouse answers the phone, the agency can’t tell the spouse what the call is about.
Generally, though, the debt collection process first involves information collection. The collection agency needs to know as much as possible about the debtor, the debt, how it was incurred, what the debtor and creditor agreed to, what has transpired since the debt has gone delinquent, and any other pertinent information.
Once the collection agency has gathered this important information, the agency will formulate an appropriate plan. The plan will likely depend upon information gathered — has the debtor been cooperative in the past or have they been difficult to contact or deal with, and so forth.
From this point on, the collection process is almost entirely in the hands of the collection agency. They can proceed as their business practices dictate up to and including filing a lawsuit against the debtor to finally recover what they can of the debt.
For the debtor, the process is one where the debtor is on the receiving end of the initial communications. Depending on how the debtor responds to the collection process, the debtor may also be involved in initiation communications with the agency or creditor.
During the collection process, the debtor can expect to be contacted by the collection agency by either mail or phone. The letters sent are usually form letters explaining what the communication is about and providing information for the debtor to contact the agency and also ensure the information the agency has is correct.
Phone calls may or may not be scripted, depending on the agency and the experience level of the phone personnel. The caller will usually begin with an introduction and attempt to draw the debtor into a discussion concerning the debt in question. Once the caller establishes a rapport with the debtor, they will discuss repayment. Depending on the collection agency and how they do business, the caller may also discuss additional repayment options available to the debtor. Collection agency phone callers are generally trained to deal with the various responses the debtor may give them, so there are many possible paths the phone conversation may travel down.
Finally, the collection process may end up with the debtor being served a Summons and Complaint which begins the legal lawsuit process. Once this process begins, the agency is much more likely to recover some or all of the debt.
Regardless of the exact path the debt collection process may take, the overall goal is to collect on a delinquent debt. This process provides for a reliable method by which collection agencies are able to reliably recover a significant portion owed.
Accounts Retrievable Systems - Working With A Collection Agency
Working With a Collection Agency
Once you decide on a collection agency, use their forms to list accounts or their format to upload accounts electronically. Give as much information as possible-accurate information about the account will improve collections.
In all cases, the minimum information should include:
• The correct name, address and telephone number of the debtor
• Name of the debtor’s spouse, if applicable
• Whether mail has been returned
• Debtor’s and/or spouse’s occupation or last known occupation and phone number
• Names of relatives, friends, neighbors and references
• Summary of any disputes
• Date of last transaction, order or payment
• Cellular phone, fax, e-mail address
• Nicknames or aliases, maiden name
If you have had all new customers fill out a credit application, all of the above information should be listed on there. The summary of disputes would be in the computer notes for the customer’s account. This makes it very easy–all the information you need, basically all in one place, on one piece of paper. This is one of the reasons why a credit application is so important. Cooperate with your collection agency. Rely on their experience, diligence, and judgment for the best and quickest results and promptly refer any contact from the debtor to the collection agency. Make sure that your collection agency is familiar with the nature of your goods or services–some agencies even specialize in collecting on specific services. For example, you might find an agency that only collects on delinquent auto loans, or medical bills, or hot tub sales. If you find an agency that specializes in your field, check them out; there is a reason they only do those types of collections. Don’t place any accounts with more than one agency. Make sure that if you change collection agencies, the accounts are only being worked on by one agency. Collection agencies’ fees are based on results, not on time spent on the account. Don’t expect payments to be made immediately.
How Collection Agencies Get Paid
Most collection agencies charge a commission or percentage based on the many factors of the accounts they are trying to collect. Some agencies charge a flat monthly fee, and some charge per letter or call.
If an agency charges a commission, it will normally be a percentage for “standard” accounts. That would be accounts that are maybe 60 days old, have a good address and phone number, and the debt is probably collectible. My collection rate was 25 percent when I owned my agency. That was for everyday accounts my clients placed. If they had an account that was under $75 or over one year old, I charged a 50-percent commission. When I had a large client placing many accounts weekly or monthly, I would give them a special flat rate of 18 percent on all accounts across the board.
Some agencies will charge a flat monthly fee based on the number of accounts you place, how frequently you place them, the dollar amounts, and age. They also may charge per letter or per phone call and let you decide the frequency of each. Collection agencies may also offer other paid services at a flat fee. Check out their websites and compare to see what the average fee structure is and what works for you and your business.
HowItWill Affect Your Business
If you decide to turn your delinquent accounts over to a collection agency, be prepared for the customer to call you. This doesn’t always happen, but it has been my experience that they will call the business owner to try to work something out once the account has been placed with an agency. Once you place the account with an agency, all contacts must be referred back to the agency. If the debtor calls you, explain to them the account is with a collection agency and they have to call them. You can always brush off the discomfort of the call by saying, “My bookkeeper, accountant, (anyone but you) is handling my accounts and the policy is anything over 60 days is placed for collections.” Once you hang up, e-mail or call your collection agency and let them know the debtor contacted you. If you receive mail or payments from the debtor, forward them to the agency.
Sometimes a customer will come back to you for services or products after they have paid a collection agency. Do not extend credit to this customer. Once you place an account with a collection agency, only accept cash payments up front. That customer cost you money when they didn’t pay their bill; if they continue to purchase from you and have to pay cash, you might recoup your losses.
Collection Agency Payments and Updates
Most collection agencies send payments once a month and some twice a month. Quite a few agencies even offer online updates on the payments and status of your accounts that they are working on. You no longer have to wait a month to find out who paid; you can search online or even call for an update. Some business owners don’t understand when they place accounts with a collection agency, that doesn’t guarantee the debt will be paid and the agency certainly never guarantees a time frame for it to be paid.
When I owned my agency, I would have business owners place accounts with me and start calling me the next day to find out the status of the account and if it was paid. You have to remember, any money collected for you is money you thought you would not be able to collect without effort and time on your part. So once you place accounts, give the agency some time to process and work on the account. Agencies also have to give the debtor 30 days by law to request verification of the debt and/or dispute the debt.
Accounts Retrievable Systems - Small Business Uncollected Debts
How does a small or home-based business handle mounting unpaid invoices when there is not enough staff to make collection calls? Try hiring a debt collection agency.
There are times when a small or home-based business owner must deal with uncollected debts. The reasons customers do not pay may vary from an unexpected hardship to being an old-fashioned deadbeat customer. It is not something that business owners want to think about but it does happen and it’s better to be prepared than surprised.
An occasional unpaid invoice can be absorbed as a business operating expense. An accumulation of unpaid invoices, however, cannot and must be addressed. After all, any business, large, small or home-based is in business to make money, not to lose it.
Small and home-based businesses usually don’t have the administrative staff or the extra person power to spend countless hours tracking down unpaid invoices. Depending on the number of outstanding invoices, it may make financial sense to hire a collection agency to collect the outstanding debts. Generally, the outstanding amount should exceed certain dollar amount before it is worthwhile to hire a collection agency.
Here are a few things to consider when hiring a collection agency:
1. Look for a collection agency that works with small and home-based businesses. Finding an agency that is familiar with a particular line of business will prove to be more successful than an agency that is totally unfamiliar with the home-based or small businesses operations.
2. Know the debtors. Collection agencies vary as much as businesses do. Look for a collection agency that specializes in collecting from your type of customer. For instance, if the debtors are mainly individuals, find an agency that specializes in collecting from individuals. Same goes for commercial debts, find a collection agency that specializes in commercial debtors.
3. Consider the collection agency’s collection tactics. If the collection agency has been very successful in collecting outstanding payments by sending letters, ask to review the letter before they are sent out. Ensure the collection agency is complying with the Fair Debt Collection Practices Act. Additionally, debtors view the collection agency as an extension of the servicing business. As a result, a properly worded letter may not only prompt the debtor to pay, but it may also salvage the business relationship whereby the customer may come back to continue to do business. Tread carefully however. If they were delinquent before, they may be again.
4. Find out about skip tracing. Make sure the collection agency employs skip tracing. On the occasion when the debtor has moved with no forwarding address and has disconnected the telephone, collection agencies can use skip tracing (accessing various databases) to locate the debtor.
5. Ensure the agency is licensed in the states for which the debtors are located. The last thing any business would want is to receive the outstanding debt only to find out that it was illegally collected through an unlicensed agency.
6. Verify the collection agency has Errors and Omissions insurance. This insurance will protect the business and the collection agency in the event an unhappy debtor sues the collection agency for tactics used to collect monies on behalf of the business.
7. Compare costs. Collection agencies earn income based on either a set fee or on a contingency basis. The contingency is based on a percentage of the debts collected. Before choosing whether to agree to a set fee or contingency, find out the collection agency’s success ratio and contingency fee percentage. For example, if they have a 68% success ratio and are charging a 22% contingency fee based on $25,000 outstanding debts, they would retain $3,740 ($25,000 x 68% = $17,000 x 22% = $3,740).
Small and home-based businesses face many challenges. Collecting outstanding debts will add to the company’s bottom-line profits. Other ways to increase the profit margin is to squeeze as much productivity out of a day as possible and to look into saving money when buying office equipment.
Accounts Retrievable Systems – Hiring A Collection Agency
Are you hiring a Collection Agency? Many agencies today have an approach that is quite “cutting edge” and can change any delinquent account into one that is paid off very quickly; the trick is finding the right Collection Agency.
First we must really know exactly what a Collection Agency does. A Collection Agency is a type of company or business that goes after outstanding payments and debts that are owed by either a business or an individual. Many of the Collection Agencies are known to assist the “creditors” and act as their agents. They will pursue a debt and after they collect on that debt, they will usually receive a percentage or a straight fee on the total that was owed, not the total that was collected.
Another name for a Collection Agency is a “Debt Buyer,” since the Agency will buy a debt from a creditor for a smaller amount and then go after the debtor and collect the full amount owed.
Furthermore, a creditor may send a debt they are trying to collect to a Collection Agency for the purpose of removing that debt from their own company’s “accounts receivable” department, and then a loss is calculated by taking the difference between the amount that was obtained and collected and the total value of the debt.
Various countries have different rules and regulations for Collection Agencies and their function. Some are governed by regulations where the law prohibits abuse and where lawsuits may arise if companies fail to follow these government laws.
Below is a list of 6 easy tips to follow when you are hiring a Collection Agency:
1) Verify that your agent is hard working and that he or she has hours that are twelve hours a day and up to six days a week.
2) Downloading debtor information from one of the three national credit offices is easy to do and can be done online.
3) Make sure you are hiring a native English speaker when hiring a Collection Agency. If you are trying to collect a debt overseas, make sure your agent is fluent in the language of the country, as well as in English.
4) No need to look into “asset search” or “tracing,” when attempting to collect from a debtor, although you may want to learn what these terms mean.
5) A bankruptcy is never made on a beach or vacation resort.
6) You can now electronically recover your checks for “Insufficient Funds.”
Accounts Retrievable Systems - Debt Collection Basics
Fortunately something called ‘The Fair Debt Collection Practices Act’ sets the guidelines what actions debt collection agencies can and cannot participate in while trying to collect a debt. For example, they cannot call earlier than 8 AM Or after 9 PM. They cannot claim that they’ll be able to garnish wages. Of course, this is limited to states in which garnishment of wages is illegal. And, they cannot continue calling you if you ask them to stop.
The entire text is worth looking through if you are in this situation. You can read it here – http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm#801
In such situations you have multiple options. These range from simply not picking up the phone, screening calls via caller ID or even getting calls blocked if your phone has that feature.
By any chance if you do pick up the phone, you can insist that you do not wish to be contacted any further. By law, they are obligated to stop pestering you. Of course, if you have sent the collectors a formal notice (such as ‘cease and desist’) you can take legal action against them. This could be your most expensive option so you might want to hold off on this one.
The fastest way to get them off your back is by paying off the debt. If the debt is a valid one then you do owe them the money. If money is really tight, you can try by renegotiating the terms of your agreement like lower rates of interest etc.
Keeping track of your call history along with any terms that were renegotiated is a good idea in these cases. This will help you keep tabs on your new debt obligations and in case they keep calling you after being told not to stop you can try recording calls if its legal and take action against them. Pretty often the debt collectors will be more careful with their choice of words if they know that their call is being recorded.
One key point to bear in mind is that collection agencies will accept amounts that are a lot lesser than their original claims. Of course, since they get a percentage of their collection amounts they will try to keep the amounts similar to the originating debt. But they do know that 50% of $200 is a lot better than a 100% of $0.
If you do negotiate new terms on your payment, make certain that there aren’t going to be any additional negative information placed on your credit history. Its always a good idea to remind them to report any payments you make.
One other tip – get the creditor to send you the terms in writing. If they are unwilling to do so, you can send them a small percentage of the amount to show good faith in keeping your end of the deal. If you pay all of it upfront, they have little reason to honor their end of the bargain.
In times like these be patient, keep your cool and be realistic about the outcomes. These attributes will be immensely beneficial while dealing with these stressful situations.
Accounts Retrievable Systems – New York State Debt Collection
Want to learn more about state by state debt recovery? What about debt recovery in New York? Following is some important information on New York debt collection laws including: New York Statute of Limitations, New York Judgments, New York Garnishments, New York Interest Rates, New York Bad Check Laws and New York Collection Agency Requirements.
INTEREST RATE
Legal: 16%
Judgment: 9%
STATUTE OF LIMITATIONS (IN YEARS)
Open Acct.: 6
Written Contract: 6
Domestic Judgment: 20 (1 0 yr. renewable lien)
Foreign Judgment: 20 (1 0 yr. renewable lien)
BAD CHECK LAWS (CIVIL PENALTY)
Face value of check plus two times check amount up to a maximum of $400 on NSF or $750 on “no account” (Demand prescribed by law). GEN.OB.1.1-104
GENERAL GARNISHMENT EXEMPTIONS
90% of earnings, except 1st $127.50 wk. wholly exempt.
Accounts Retrievable Systems - Debt Collection Recovery Rates
It’s not important to know what an agency’s rate of debt collection is, because every debt is different. The only rate that matters is what percentage the debt agency will take and if it actually collects something. It is helpful to the agency (and the attorney) if you as the business owner have a bottom line figure in mind when negotiating a settlement. Yes, it’s depressing to think about a debtor getting away with anything but settlements are frequently the only way that at least some money can be recovered using good debt collectors. Agencies (and attorneys) will naturally want to collect as much as possible, because they are being paid on a contingency basis, which means they receive a percentage of what they collect.
They also have an inclination to work out settlements, so that they can guarantee making something acceptable on the deal. Effecting debt collections takes time, which means that is costs money to make the effort. One way or another, it is going to cost you as the business owner money and good debt collection agencies are worthy of their hire, as are good attorneys. since you the owner have already successfully written off the past-due balance on the books, anything that comes your way is found money. It’s only fair that you split the proceeds with the person(s) who helped you find it.
