I have observed many companies, (in my 31 years in the debt collection industry) being blindsided by the reality that they stand to take a substantial hit on what they were holding in their A/R that was past due. In essence, they were counting on and believing in false profits.
The all too common assumption is that as long as a customer is buying and my receivables are growing, we’re making money. The thinking seems to be that cutting a non-payer or very slow-payer off from more credit will, A – cause you to lose needed revenue, and or, B – cause the customer to not pay you as they seek credit and the goods/services elsewhere.
In other words, we want to believe that the customer will eventually pay, catch-up, etc. We certainly don’t want to believe we’re about to get screwed over with an unpaid receivable.
I have seen companies play this game of ‘roulette’ for a year and more allowing customers to receive their goods or service, all without paying, and all because of the mind-set that I mention above. Companies just hate to turn away revenue, and they just want to blindly believe, in spite of all the signs and statistics to the contrary, they’re eventually going to get paid. You know the story, ‘they know better’, ‘they know their customer’, constantly playing amateur psychologist, emotionally attached to the situation, because it’s money involved, and you know if there’s anything that can get us emotionally attached, it’s our money…
News Flash! All monies that are written off are pure profit dollars. All operational costs, salaries, taxes, etc. have already been paid. You might consider, in your particular business, how much in gross revenue needs to be regenerated to just cover what you had to write-off.
For example, let’s say your ‘net profit’ is in the 12-15% range, and you just wrote-off a $10K bad debt. You would need to generate about $90K -$100K in new sales just to cover the loss of that write-off. Again, what you write-off are pure profit dollars.
I will give you 2 current examples from our portfolio of accounts; but believe me, I can give you many, many more!
Example #1 is a small meat distributor, in this case selling to a small mom & pop store. Back in May 2011, the store bounced 5 checks totaling about $4k. A small payment was made in May toward one of the checks. In spite of this glaring warning sign that there were problems with their cash-flow, the distributor continued to deliver meat for the next 3 months, with no payment whatsoever. The last delivery was in August 2011, and then they finally stopped delivering. Now the distributor was owed $20K! But wait, it gets better. They tried for 1 ½ years to recover the debt from the store before finally placing the account with this agency in February of this year.
Example #2 is a small produce wholesaler selling to a mom & pop retail produce store. In April of 2012 they received 3 NSF checks from the store totaling $6700. Nonetheless, without any recovery on the checks, they continued to provide produce to the store through September 2012. Now they were owed over $16K. They finally placed the account with us in January of this year. By that time the store had been taken over by another creditor, who subsequently closed the store, sold the assets and distributed the monies ‘proportionally’.
Our client received $400.
Unfortunately, both believed in ‘false profits’.
I cannot tell you the number of short-sighted business owners, controllers, credit managers, etc., that I’ve spoken to through the years that end up in this situation, often largely due to, (are you ready for this?) they don’t want to pay to have a collection agency do what they are ‘so good at’. I mean God forbid they cut-off a customer early and place with an agency they would have to pay 10-20% to.
No, they’ll save their company money by continuing to ‘work with’ the customer, or try to recover on their own for a year, yada, yada..
If I’m sounding sarcastic it’s because I’m trying to. When you have the advantage of seeing this happen to thousands of businesses for 31 years, I guess you get a little jaded to the same old worn-out, tunnel-vision, excuses coming from some of these credit execs and business owners.
Bottom line, write a credit policy and stick to it. The odds of greater recoveries and less write-offs will be well in your favor. Don’t put your hope in false profits!
Art W Schnitzer
The Cash Flow Group, Inc.
No compliance issues here, we don’t use auto-dialers! If your agency does, have fun running the obstacle course..
Check out the whole article from insideARM.
TCPA Compliance Article
On May 11, the U.S. Court of Appeals for the Seventh Circuit held that the Telephone Consumer Protection Act (TCPA) requires consent from a current cell phone subscriber to receive automated calls – even if a former subscriber to the same number had previously given consent to be contacted.
Read whole article:
Top Ten Ways to Improve Payments
When a company provides a product or service, it has the right to be paid on time. However, anyone who is in business quickly learns that prompt payment doesn’t always occur. Accounts can sometimes become seriously past due or customer checks can bounce when payments are made. Unfortunately, cash flow can be severely impacted by these slow paying customers.
To reduce the number of slow paying accounts, evaluate your current practices and see if they align with the following ten guidelines:
1. Have A Clearly Defined Credit Collection Policy
One major cause of overdue receivables is the lack of a written payment policy that tells your staff and customers when accounts must be paid. Make sure that your company’s terms of payment are clearly stated in writing, to each customer, since uneducated customers often pay late or sometimes not at all.
2. Invoice Promptly and Send Statements Regularly.
If you don’t have a systematic invoicing and billing system, get one. Many times the customer hasn’t paid simply because they haven’t been billed or reminded to pay in a timely manner. This situation regularly occurs in small businesses where there isn’t enough staff.
3. Use “Address Service Requested”
One of the most difficult collection problems is tracking down a customer who has “skipped.” All businesses should be aware of a special service offered by the Post Office. Any statement or correspondence sent out from a business or professional office should have the words “Address Service Requested” printed or stamped on the envelope, just below your return address in the top left corner. If a statement or invoice is sent to a customer who has moved without
informing you of his new address and the words “Address Service Requested” appear on the envelope, the Post Office will research this information. If they can locate a change of address on that person, they will send you form #3547 with the correct address (50 cent fee).
This also keeps your address file up to date.
4. Contact Overdue Accounts More Frequently
No law says you can contact a customer only once a month. The old adage “The squeaky wheel gets the grease” has a great deal of merit when it comes to collecting past due accounts. It’s an excellent idea to contact late payers every 10-14 days. Doing so will enable you to diplomatically remind the customer of your terms of payment.
5. Use Your Aging Sheet, Not Your Feelings
Many businesses (or well-meaning people on their staff) have let an account age beyond the point of ever being collected because he or she “felt” the customer would pay eventually. While there certainly are a few isolated cases of unusual situations, the truth is that if you aren’t being paid, someone else is. So stick to your systematic plan of follow up. You’ll soon know who intends to really pay and who doesn’t. You can then take appropriate action once you know where you stand.
6. Make Sure Your Staff is Trained
Even “experienced” staff members can sometimes become jaded when dealing with past due customers. This usually occurs when they have made and broken promises for payment. Make sure the staff is firm, yet courteous when dealing with them. Your collection staff could benefit from customer service training because, in effect, they must “sell” your customers on the idea that you expect to be paid. Make sure that your collection staff is trained to not only bring the account current, but to also maintain good will with them.
7. Admit and Correct Any Mistakes on Your Part
Sometimes customers don’t pay because they feel you’ve made a mistake. If you have, quickly admit it and correct it. Your customer realizes that mistakes can happen in business. Unfortunately, many customers believe that “the owner/president doesn’t need the money.” Denying obvious errors only fuels the fire of resentment your customer may
8. Follow the Collection Laws in Your State
In many states, businesses are governed by the same collection laws as collection agencies. For example, calling customers at an odd hour or disclosing to a third party that they owe you money are just a couple of the numerous collection practices that can get you sued. Imagine a
person that OWES you money filing a lawsuit against you. If you’re not sure that you are compliant with the law, call your state’s department of finance.
9. Use a Third Party Sooner
If you’ve systematically pursued your past due accounts for 60 to 90 days from the due date, (and they still haven’t paid) you’re being delivered a message by your client. More than likely, you’ve requested payment four to six times in the form of phone calls, letters and statements. Statistics show that after 90 days, the effect of in-house collection efforts are reduced by 80%. That means that the time and
financial resources budgeted for collection efforts should be focused within the first 90 days where the bulk of your accounts can and should be collected. From that point on, a third party can motivate a customer to pay in ways you cannot, simply because the demand for payment is coming from
someone other than you.
10. Remember That Nobody Collects Every Account
Even by setting up and adhering to a specific collection plan, there are a few accounts that will never be collected on. By identifying these accounts early you will save yourself and your company a great deal of time and money. Even though a few may slip by, you’ll find that overall the number of slow paying and nonpaying accounts will greatly
diminish, and that’s a victory in itself!
(July 2002 Article from Thomasregister.com)
Roman has received the check and I would like to express my gratitude for your help in this matter.
You payed enough of your attention and effort to our problem despite the international nature of the conflict.
Of course we weren’t able to recover entire debt amount but without your help we wouldn’t be able to recover anything at all.
Art, thank you very much!
It was really pleasant to have business with you.
With kindest regards,
Unsolicited testimonials are always the best. This from a client from Ukraine. At least we were able to get them a favorable settlement in a very difficult situation.
Lesson learned here that I repeat so often, don’t let unpaid receivables age out so far that they become almost impossible to recover.
I always love to hear good things from our clients and was amused a few days ago by this unsolicited (always the best kind!) testimonial from them.
Wanted to take a moment and say thank you for what a great job you and your staff are doing.
This last check from you was more than what NCO (our last collection agency) has collected for us in the last 5 years!
Your work is really appreciated by everyone (except those that are finally forced to pay us).
We wanted to do something special for you guys to say thanks, so yesterday we had a Bar-B-Que and thought a lot about what a great job you guys were doing.
We wished you guys could have been here in person, but we understood that the drive would be just too prohibitive.
Anyway, we realize it is the thought that counts.
Jon W. Baker
AFTCO Mfg. Co., Inc.
Of course Jon included a picture of their grill loaded with goodies, (see pic in flickr). You must understand they’re in California and we’re in Florida! But I so appreciated it, need to get out there to visit them sometime…
I’ve been seeing several articles on this Payday Loan Collection Scam. It is apparently pretty widespread and I would guess that my agency’s name and logo are not the only one being used by these crooks.
Read this article and beware!
Click here for full article
Beware Payday Loan Collection scam!
Beware of a group attempting to collect on old Payday loan debts and fraudulently presenting themselves as representing this company. These people have very strong Indian or mid-Eastern accents and are extremely verbally abusive and threatening.
According to Florida authorities, they apparently hacked into some company’s data-base and are attempting to collect on these old debts
Do not give them any banking or credit card information or send any money by any means.
Do not engage in conversation with them.
Please report any incidents immediately to the Florida State Attorney General’s Office
www.myfloridalegal.com/contact or 1.866.966.7226
It is very important that you report the incident so that the Florida State Attorney General’s Office receives enough information to stop this scam.
Cash Flow Management Group, Inc. does not represent ANY Payday Loan or check cashing stores. Also, you will note the contact information they give does not match any information on our website.
They have stolen/copied our logo and are using our company name in this scam.